Tag / Private Sector

by Katie Bawden

CREATING VIBRANT TOWN CENTERS AND MAIN STREETS – Part 1

Photo credit: News Corp Australia

Part 1 – Issues

Main streets and town centres play a big role in the social and economic development of places and in the lives of people who live there. They are places where people work, shop, eat, drink and live. Therefore they contribute significantly to the health, well being and living standards of a community.

In Western Australia (WA), natural amenity has always been WA’s strongest comparative advantage, with pristine beaches, ancient forests’ and mineral-rich, ruby landscapes. However, our town centers and main streets lack that same draw and today, they are struggling to be vibrant places that support community connectedness and quality of life. 

Poor planning, capital works, globalisation and technology change have eaten away at the centrality of WA’s town centres and main streets. Shopping centers have become de facto town centers based on mass consumption, global brands, and car access.  As a result, WA’s town centres have seen sustained shop closures, indistinguishable offerings, reduction in community uses and localised jobs. However, planners, governments and community are all interested in making these places more desirable, vibrant and livable. Town centres and main streets need urgently to adapt, transform and find a new approach in order to survive.

This report is delivered in two parts using a combination of literature and observations to examine the perceived issues (Part 1) and possible actions (Part 2). The report is not intended to be comprehensive, and there will likely be much more that can be said on the topic. It also does not discuss the interventions that governments and communities have already supported, such as extended retail hours, alcohol licensing, community events and the town team movement that has already built substantial community vibrancy.

ISSUES

1. Shopping centres and attraction precincts

Shopping centres and the emergence of multi-attraction precincts have become de-facto town centres, offering a mix of retail, dining, activities, and parking all in one convenient location. Often located outside of the town centre where land is cheaper, they have shifted activity from our main streets and town centres. However, these precincts, but are generally based on consumption and add very little to community connectedness and social outcomes.

 2. Online retail

Ecommerce is booming, changing the way people shop. It is anticipated that by 2021, Australians will spend $35.2 billion online each year, fast becoming a big threat to brick-and-mortar retailers (Australia Post, 2019).  Customers may undertake ‘showrooming’ to view an item and then buy the item online at a discount. The flipside of this is  webrooming, where customers search online before purchasing in person. While neither are new trends, eCommerce is rapidly growing and many small businesses have not adapted their business model. In reality, most retailers today require a multichannel strategy to reach different demographics and to allow customers to purchase on their own terms (Williams, 2019). 

3. Big brands 

The emergence of global and national retail and food chains have been used as an attraction ‘anchor’ for town centres and main streets by creating a signal regarding brand quality and certainty. However when town centres become dependent on global/national retail and food chains, they can crowd-out smaller businesses such as local boutiques and cafes for several reasons. For example, big brands may:

  1. their purchasing power to drive down the cost of their products to lower consumption costs which smaller businesses find hard to compete with; 
  2. typically afford larger rents and are thereby favoured by landlords and local authorities; and
  3. have a limited impact on local wages as profits are not held locally, and typically do not reinvest profits into the local economy.

Thus there to be more recognition of the dynamic relationship between small businesses that offer the vibrancy and uniqueness that attracts customers which then harness big brands.

4. Suburban landscapes

WA’s dependence on the low rise suburban lifestyle does not create the density required to enable the spark and liveliness seen in places such as European centres and global cities. Instead it creates significant urban sprawl that has a negative impact on both people and businesses. It also leads to longer commute times, higher carbon footprint,  traffic congestion, negative health impacts, and for businesses, overt peak and non-peak periods. 

Main streets and town centres require activation not just during standard business hours but also after work.  Stores, restaurants, gyms, and other businesses can only open if residents work in the centre and shop, access activities and restaurants after work. This also reduces commutes and makes more time available for exercise, community activities, and family time after work.

5. Landlords and fragmented ownership

Property owners and landlords are one of the most important as they control business entry and exits,  rents and the diversity of offering. However, their expectations can be out of kilter with the demand in the property market.  For example, landlords may favour bigger businesses or franchises that can pay higher rates, expect small businesses to match the higher of big businesses, and fail to adjust expectations after a dip in demand. If rents are out of kilter with the market, businesses may exit for cheaper rates elsewhere or indefinitely after experiencing financial hardship.

Disparate property ownership may also mean that main streets, town centres and shopping centres can be owned by a mix of individual landlords, property management firms, hedge funds and private equity. As a result, ‘fragmented ownership’ often creates a barrier to a coordinated response when challenges arise or when regeneration and revitalisation is required (Housing, Communities and Local Government Committee, 2019). 

6. Capital works

The upgrading of local infrastructure will always be required to support growing and evolving community needs. However, governments sometimes deliver lengthy capital works programs that can be destabilising for small business. Instead of upgrades facilitating vibrant community centres, capital works can have a large financial impact on local businesses as foot traffic falls along with profits and even leading to business closures.

7. Shop closures and vacancies

Main streets and town centres are made up of businesses that sell primarily to the local economy, “which includes independent shops, chain stores, restaurants, hairdressers, and services like solicitors”(Centre for Cities, 2019). Thus the health of our main streets and town centres, need to be considered as an ecosystem. That is the health of a wide range of integrated local businesses. Shop closures and vacancies are not only a symptom of a struggling main street or town centre but they are also a cause. Empty shops can signal to the market that consumption or visitation is declining. As a result, a negative feedback loop is formed through reduced investment, availability of offering, and foot traffic and consumption that can reinforce a sense (and signal) of decline and neglect.

8. Business rates

Business rates are an important source of income for local authorities. In WA, rates  generate more than $2 billion each year (My Council,2020) . While there is now greater transparency on rate payments and the financial health of WA local governments, there is considerable flexibility in how local authorities set their rates. 

As the rate system encourages local authorities to grow their local economies and to be rewarded for doing so with extra revenue, it can skew local policy. This is because additional business rates can only be generated by constructing new buildings or increasing net floor space, and can have a  negative implication for town centres as efforts are directed into out-of-centre developments, shopping centres, and bigger businesses. In addition, business rates do not take into consideration technology changes with physical retailers paying more (Housing, Communities and Local Government Committee, 2019).

by Katie Bawden

Understanding Job Creation: Part 2 Industry

This literature review examines how jobs are created to identify consistent themes, dynamics and determinants that government can apply to develop meaningful policy and initiatives. You can read Part 1  here which examines how places create and destroy jobs. It finds that agglomeration is a driving force behind structural change, economies of scale and how places grow and create jobs.

Traded Jobs

Economic growth and job creation has been strongly linked to the traded sector – that is, firms that derive income from exporting (Mc Andrew, 1995). This is because investment and job creation in the traded sector is new money which flows through to increase demand for local services and goods, generating additional jobs. Bacchetta and Stolzenburg (2019) found that in most advanced nations, more than 50 per cent of jobs are underpinned by traded industries.

Traded sector refers to “businesses are those that sell their output in competition with businesses in other states or nations”.

Local sector refers to businesses that “sell their goods and services primarily or exclusively in a local market. By definition, local businesses tend to be sheltered from competition from other places” (e.g. local shops and restaurants) (Cortright, 2017).

Cortright (2017) finds that education and skills can be specifically attributed to “two-thirds of the variation in per capita income” of a city. While there are many well educated and skilled people employed in the local sector such as doctors and lawyers, those jobs are found in most locations and are proportional to the size of the population (Cortright, 2017; Delgado & Mills 2018). Therefore, the difference in income levels is derived specifically from the additional benefits gained from concentration of highly skilled – high paid jobs in the traded sector. This is because, traded industries typically agglomerate or cluster in one location due to the specific benefits that certain places offer. These include specific workforce specialisation, economies of scale and market access (Delgado & Mills, 2018; Florida, 2008; Hausmann et al, 2007; What Works Centre for Local Economic Growth, 2019). In addition it has recently been found that firms that cluster and network along the traded supply chain are more innovative and support significant job creation (Delgado & Mills, 2018).

Employment Multiplier

A healthy traded sector directly benefits the whole economy by creating well-paid jobs and indirectly creating additional jobs in the local sector (Cortright, 2017; Delgado and Mills 2018).This dynamic is known as the employment multiplier and there are three types, including:

  1. “in tradable sectors (that sell mostly outside the local economy);
  2. in tradable skilled and high-tech sectors, specifically; and
  3. in the public sector” (What Works Centre for Local Economic Growth, 2019).

The size of the multiplier is determined by the extent to which the new jobs add new value and supports a desirable economic restructuring. Research What Works Centre for Local Economic Growth, 2019; Cortright, 2017; Delgado and Mills, 2018; Mc Andrew, 1995; Moretti, 2012) has consistently found that the higher skilled a job is in the traded sector, the greater impact on job creation. Moretti (2011) found that high skilled, traded jobs in the US, such as a job in the technology giant, Apple, created five additional jobs in the local sector. Two of the jobs created by the multiplier effect would be professional jobs such as a doctor or lawyer—and the other three would be in non-professional occupations such as restaurant workers or retail. More explicitly, the What Works Centre for Local Economic Growth (2019) found on average that:

  • a traditional traded sector job create a job multiplier of 1.9 jobs in the local sector;
  • a higher skilled traded sector job created 2.5 jobs created in the local sector; and
  • a new government job created only 0.25 jobs on average in the private sector[1].

Supply Chain Industries

A recent study by Delgado & Mills (2018) found that supply chain industries (i.e. business-to-business or business-to-government) are a very important segment of the economy and critical to both job creation and innovation. Delgado & Mills found that supply chain industries created over 53 million jobs or 43 per cent of the US employment in 2015 and had the highest percentage of science, technology, engineering and mathematics (STEM) jobs at 81 per cent. The highest value creators in the supply chain were not the businesses producing parts but providing “supply chain traded services, such as in engineering, computer programming, and design” (Blanding, 2019).

Supply chain refers to an interrelated group of “individual suppliers that feed companies with the goods and services necessary to create products for consumers and businesses” (Blanding, 2019).

Delgado and Mills (2018) attribute the benefits derived from supply chains to three main reasons. That is, supply chains:

  1. produce specialised inputs which generate new knowledge and leads to innovation;
  2. by nature have a large number of linkages to many different downstream industries responding to market directions and diffusing innovations more efficiently; and
  3. lead to co-location or clustering which supports innovation and growth of the industry as they share ideas, concentrate talent; attract capital and generate economies of scale.

Thus, the examination of traded industries and supply chains provide a new and important frame for industry development, innovation and job creation.

 

 [1] Gonzalez-Pampillon (2019) also noted that government jobs were found to have a crowing out effect in some cases and cautioned that the relocation of government jobs did not have a net job gain.

 

by Katie Bawden

Part 3: the Innovation Ecosystem – Roles and Responsibilities

To drive an innovation-led approach to economic growth, it is essential to understand the roles of both the public and private sector, including academia; and how each can enhance to the ecosystem.

Innovation ecosystem: is the flow of technology and information among people, enterprises, and institutions central to an innovative process. It contains the interactions between the actors needed in order to turn an idea into a process, product, or service on the market (OECD, 1997).

PUBLIC SECTOR

The public sector has responsibility for creating an environment that ignites innovation and supports entrepreneurs. Yet, as Isenberg (2016), notes “there’s no exact formula for creating an entrepreneurial economy; there are only practical, if imperfect, road maps”.

However, it is generally acknowledged that government have various tools at hand. Governments can create ‘demand factors’ for innovation such as policy, regulation and innovation targets the cause the market to change direction (this is essential to enable economic structural change). While Innovation ‘supply factors,’ may include research and development (R&D) credits, academic partnerships and university graduates.

In Mazzucato’s book, The Entrepreneurial State (2014), she argues that government has a bigger role beyond tax credits and the enabling environment. That is, government can also invest in transformational R&D where there is a public good, the risk is high and long term investment is. Marzzucato suggests that such investment by government often leads to transformational change that can create entirely new sectors and markets. Examples of these types of investment include the nuclear energy, the internet and GPS. For government to take this approach it needs to have a long term agenda for technology change; and work with in partnership academia and the private sector so they too can seize the opportunity along the way to add new information to develop spinouts.

Workforce development is also directly linked to the future of businesses creation and economic growth.  Government set the policy, run many of the programs and fund many academic institutions that develop skilled workforce essential to the capability to develop innovation commercialise but to also enable economic transformation when required (Fetsch , 2016).

Fetsch (2016), Moretti (2012) and (Sandbu, 2017) all argue that government can also drive immigration policy that supports innovation policy through three main factors:

  1. importation of skilled workforce to compliment or build a competitive advantage;
  2. immigrants “play a disproportionate role founding companies that make a big economic impact” because they are naturally risk takers having immigrated in the first place; and
  3. Foreign Direct Investment (FDI) flows often through the expat community to enable innovation and business growth

Isenberg (2010) provides a localised perspective and suggests that many government efforts focus too narrowly on building ecosystem determinants. Instead he suggests that government should focus on the following nine principles to “turbocharge venture creation and growth”. Isenberg’s principles include:

  1. Stop emulating Silicon Valley. Rather you can develop your own culture and practices that underpin entrepreneurship and innovation. Also see the ‘rules’ described in the Hwang and Horowitt (2012) book the Rainforest: the secret to building the next silicon valley;
  2. Shape the ecosystem around local conditions. Home grown solutions that compliment “local entrepreneurship dimensions, style, and climate” (Isenberg, 2010);
  3. Engage the private sector from the start. Reach out and understand industry needs;
  4. Favour the high potentials. This is through focusing on gazelles (high growth firms) and applying economic gardening approaches, as noted in Part 2;
  5. Get a big win on the board. Celebrate successes as success can spur more innovation and entrepreneurship;
  6. Tackle cultural change head-on. Governments can help to promote the benefits of innovation, the opportunities entrepreneurship through setting values that celebrate innovation and entrepreneurship, encourage collaboration and by building a tolerance of failure;
  7. Stress the roots. Let the market determine value – be careful propping up ventures;
  8. Don’t over engineer clusters; help them grow organically. Clusters occur naturally when an opportunity exists and are an important element of an ecosystem. However, government shouldn’t be picking winners, just backing them; and
  9. Reform legal, bureaucratic, and regulatory frameworks. Over regulation at all levels can stifle innovation and entrepreneurship. Examining the institutions and incentives is essential to ensure an ecosystem is guided by positive regulation.

 

PRIVATE SECTOR

The private sector is the main agent of innovation and value creation. They are the ones that take the risks, commercialise the products and services, and create jobs. Yet private stakeholders are often multifaceted, holding many roles along the innovation pipeline.

Entrepreneurs are the people with the ideas and are risk takers. In his book, Worthless, Impossible and Stupid, Isenberg (2013) notes that entrepreneurship is defined by an individual’s ability to perceive, create and capture extraordinary value.

A Start-ups is an early stage business that is beginning to scale rapidly. Angel investors “Incubators, accelerators, universities, and public agencies” typically provide the majority of help establishing the business in its early stages (Startup Europe India Network, N.D). Most start-ups die in their first two years in a period called the valley of death.

Valley of death: is a common term in the start-up world, referring to the difficulty of covering the negative cash flow in the early stages of a start-up, before their new product or service is bringing in revenue from real customers (Forbes, 2013)

While Small to Medium Enterprises (SMEs) are small businesses that have overcome the valley of death, tested the viability of their product of services, established a customer based and achieved growth that has allowed them to employ staff. Yet SMEs often lack the knowledge on how to scale-up and lack the resources to invest in innovation to fuel productivity and development (OECD, N.D). Once a business has gotten to this stage of its development, it has greatest potential to become a gazelle (see Part 2).

Investors are typically defined based on the capacity they can invest.  Most types of investors provide more than capital, also offering business support, networks and sometimes markets.

Typically early stage investors offer small amounts of capital and include business angels, incubators and accelerators[1], and some seed stage venture capital funds. As the start-up grows, it requires more investment to fund its expansion and will seek an investment from the venture capital investors who are considered growth-stage investors. Private equity investors and corporates are typically investors at a later stage business growth which may include business merges, stock market listing and buy-outs (Startup Europe India Network, N.D).

Hwang and Horowitt (2012) put forward a softer model in their analysis of the innovation ecosystem and identify:

  • Business leaders: who have a reputation of being innovative. What culture, process and strategy does individual business set to in place to innovate within their business to support innovation?
  • Keystones: individuals or businesses who serve as agents that connect people, ideas and investment to catalyse diverse action. Keystones can also exist in the private sector.
  • Stakeholders: anyone who is an entrepreneur, investor, support organisation or participates in the innovation ecosystem.
  • Role models – local entrepreneurs that are visibly successful in the community and offer examples of success and failure. They are people that promote a positive innovation and entrepreneurship culture. They challenge aspirations and values.
  • Community – the industry sectors, services providers and collective human capital that underpin an ecosystem.

 Industry: However ecosystems are also place-based, in that innovation, R&D and spill-overs are happen in a place, that is proximity is important for knowledge diffusion and is primary influenced by local innovation capacity (Rodríguez-Pose & Crescenzi; 2008). As a result a places industry base and industrial clusters become another important organising principle and stakeholder group for analysis.

Industrial cluster: “are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure (Porter, 1998)”.

Crescenzi & Iammarino (2016) note that “economic and innovation trajectories do not depend exclusively on localised productive and knowledge assets but need to combine ‘local buzz’ and ‘global pipelines’”. Thus looking at a places external linkages through the lens of FDI flows, global supply chains and multinational corporations offers the opportunity to extract information and opportunities to leverage innovation, build capability and establish new markets.

Finally, academia, which provides an institutional framework for developing workforce skills and values that support and drive innovation and enable agglomeration forces which drive productivity. Academia can even compensate for some businesses that are not as well-equipped to do under take R&D through the production of skilled workers; public-private partnerships; and the generation of patents that diffuse into the local innovation ecosystem (Cauce, 2016).

CONCLUSION

No matter how you analyse your ecosystem, fundamentally what drives success it is how we join up and collaborate to create value. Hwang and Horowitt (2012) note that ecosystems “thrive because of normative culture that accelerates the evolution of human organisation into ever-increasing patterns of efficiency and productivity”.  In other words, we need to create value systems and networks that enable collaborative and symbiotic behaviours across all actors if we are to achieve well-functioning innovation ecosystems. No single individual or stakeholder group can do it alone.

 

Book References

Isenburg, D (2013) Worthless, Impossible and Stupid. Harvard Business Review: Boston.

Hwang, V. and Horowitt, G. (2012) The Rainforest: the secret to building the next silicon valley.
Regenwald: California.

Mazzucato, M (2015) The Entrepreneurial State. PublicAffiars: New York.

Moretti, E (2012) The New Geography of Jobs.  Houghton Mifflin Harcourt Publishing: New York.

 

[1] private incubators and accelerators are often owned by investors who use the structure as a mechanism to identify investment opportunities.