Who is responsible for job creation? The president, local government, entrepreneurial business people?

As we expressed last month in the first installment in our Thinking Local series, you don’t have to look to ambiguous entities to create change in your community. You, and your neighbors, have the power to effect considerable change by just changing your habits. There is power in your dollar, but there is also power in your voice and vote.

So, what exactly is job creation? Any new job that pays a living wage in Portland is a good thing, right?

Well, yes. And no, because it’s not that simple. Where did that job come from? If it was homegrown, that’s great. But, sometimes job creation in Portland is a job loss in another part of the country. And does wooing a big business to relocate in your city really benefit the locals?
 

Job Relocation?

Taxpayers may have to shoulder $2.6 million in interest payments for Vestas' future headquarters in the Pearl District, which was funded in part by a controversial loan from PDC. And that's only for the most recent, and smallest, $8.1 million loan.
Taxpayers may have to shoulder $2.6 million in interest payments for Vestas' future headquarters in the Pearl District, which was funded in part by a controversial loan from PDC. And that's only for the most recent, and smallest, $8.1 million loan.

In 2002, the City of Portland encouraged the Denmark-based wind turbine manufacturer Vestas to relocate its North American headquarters and build a new manufacturing plant in town. Announcing it would bring 1,200 jobs to Portland (at a time when we had the nation’s highest unemployment), Vestas received encouragement in the form of public incentives—more than $10 million in public funds.

After pitting the Port of Portland’s Rivergate Industrial District against Washington’s Port of Longview, the manufacturing facility never came to fruition and the jobs eventually went to Colorado. Other planned expansions stalled, like the $250 million South Waterfront headquarters, for which the company was set to receive $31.5 million in direct incentives from the state and city in 2008. The $12.5 million from the city was the most Portland had ever offered for corporate recruitment, but the company said it would create 850 new white-collar jobs by 2011.

And it worked. Sort of. Vestas did come to town (and has ultimately stuck around) but not all the jobs followed. The Danish company currently employs approximately 400 in Portland, leaving Vestas some 800 jobs short of the goal it set in 2002 and again 2008. After ditching the expensive South Waterfront project, Vestas finally committed in 2010 to a $66 million renovation of the Meier & Frank Depot Building in the Pearl. City Hall offered Vestas another loan ($8.1 million this time with no payments due for 15 years), of which The Oregonian said, “Portland’s urban renewal agency sidestepped its own guidelines last week in approving an unprecedented interest-free loan to keep turbine-maker Vestas in the city.”

Now, in 2012, the latest news is that Vestas lost $220 million in 2011 and was forced to cut thousands jobs worldwide. Vestas will not disclose the total number of employees affected by location, but company spokesperson Andrew Longeteig says, “The jobs lost in Portland were limited to a few positions.”

When these incentives were given out, it was assumed the income taxes of new hires would repay state's incentives in five years or less. Obviously, the anticipated expansion never happened, and local local taxpayers have been burdened with the cost.

It’s difficult to determine the public cost per job created, but if we focus on the most recent, and smallest, $8.1 million loan, The Oregonian reported that it could cost taxpayers as much as $2.6 million to cover interest payments. And, the city is only compensated for that $2.6 million (over five-plus years) if Vestas actually grows and adds 800 jobs—in the meantime, taxpayers shoulder the liability.

Iberdrola's Klondike wind farm in Sherman County, Oregon.
Iberdrola's Klondike wind farm in Sherman County, Oregon.

And to add some complexity to this subsidy web, the city also recently approved another million-plus dollar public grant to Iberdrola, another foreign wind energy company with headquarters in Portland and a competitor of Vestas, which ironically laid off 25 Portland workers just weeks prior to approval.

This begs the question: Are multi-million dollar public investments to woo corporations to our city in the best interest of our local economy?

Small business owner and local advocate Tony Fuentes simply puts it this way: “Given our decade-long experience with Vestas, it's hard for me to view these public subsidies as the best investments, or even good investments, in our local economy.”

And in the bigger picture, are these relocations of companies helping job growth nationwide or shuffling people’s lives around the country (or even world)? Of the 1,200 originally projected jobs, Vesta had planned to hire more than 1,000 new employees in Portland while relocating about 75 jobs from its former headquarters in Palm Springs, Calif. But with only 400 currently employed in town, was offering Vestas public incentives an effective investment?


Or Local Job Creation?

Small businesses in Oregon account for 66 percent of net new jobs created.
Small businesses in Oregon account for 66 percent of net new jobs created.

Should we instead be looking towards homegrown businesses?

Nationwide, small businesses account for 64 percent of net new jobs created, and Oregon is even better off at 66 percent.

"If you look at the Fortune 500 companies, they've actually had declining employment for the last 10 or 20 years,” Stacy Mitchell, a senior researcher at the New Rules Project, says. “There's no job growth; it's actually layoffs and job decline at the top end of the corporate spectrum. The real job growth is with small businesses."

And not just small business, but small, local businesses—and an abundance of numbers back up this assertion.

From 1999 to 2009, the majority of job growth in the Portland metro area came from the expansion of existing companies, according to the National Establishment Time Series database. Resident companies based in the metro area grew by 63.6 percent while nonresidents (headquartered outside of Portland) declined by 8.9 percent.

In the same 10 year period, Portland-based companies created 92,413 jobs while nonresidents lost 38,388. The greatest growth came from small Portland businesses. Those with less than 10 employees (including self employment) were the only net job creators, adding 113,630 jobs. Companies of 10 to 99 employees lost 337 jobs and the biggest losers were companies employing 100 or more, losing 20,880 jobs.

The moral of the story: Most jobs come from the businesses and talent already located in our backyard.

 

How Can We Create Local Jobs?

Is there a more innovative approach to create local jobs?
Is there a more innovative approach to create local jobs?

The above numbers effectively tell us that investing in big companies like Vestas and Iberdrola is not in our best interest.

Small business is the engine of the economy and a principal focus of the department,” Bruce Laird, a recruitment officer for the state agency Business Oregon, says. “The big projects get the press while the real work is around small business.”

While state and local agencies offer plenty of public subsidy, loan and educational opportunities for businesses of all sizes—whether they come locally from the Portland Development Commission or from the state level via Business Oregon, the Oregon Arts Commission or the Oregon Cultural Trust—public officials also point to independent organizations as places to meet your fellow small businesspeople and learn about others’ experiences and successes or even private grants that may be available.

But is there a more innovative approach?

 

Economic Gardening

Focusing our energies on the expansion of local companies may be the way to build a strong local economy.
Focusing our energies on the expansion of local companies may be the way to build a strong local economy.

What if instead of recruiting companies, we focused on the talent that already exists in Portland? Those small businesses that already make up 66 percent of net new jobs created, couldn’t they stimulate even more job growth?


Small business industries in Portland go beyond boutiques, bars and coffee shops, and not all small businesses stay small—both Nike and Precision Castparts are Oregon-born-and-bred, Fortune 500 companies.

Economic gardening is an entrepreneurial approach to economic development that focuses growing on already-established companies. Simply put, rather than providing incentives or tax breaks to lure outsiders to your city, focus your energies on expanding the companies that already exist.

The quintessential example of economic gardening comes from Littleton, Colo., where over the course of two decades jobs nearly doubled (from 15,000 to 27,000) and the sales tax revenue tripled (from $6 million to $20 million) while the population only grew by 23 percent. And the city’s industries diversified.

How’d they do it? Through a combination of education, access and mentorship.

And Oregon even has our own economic gardening task force, the Grow Oregon Council, which has already experienced success working with the Tualatin-based Keyscaper among others. Grow Oregon helped the creator of customized graphics for computer keyboards and mice get access to new channels and distributors, which in turn increased sales by more than $100,000 per month and staff by 50 percent in one year.

So, what’s needed to grow an economic garden?

NN will tackle the how to implement an economic garden in our next installment of Thinking Local.