Measuring True Economic Progress Matters
How should those of us promoting stronger local economies measure success?
Author and local economist Michael Shuman recently shared his report card on the local economy movement and introduced twelve ways we can measure success in our local economy. Yes, stories matter—but data that points to true economic progress matters, too.
“Most communities measure economic progress by looking at regional gross domestic product (GDP), population growth, or successful corporate attractions.
We know these measures are misleading and wrong, but what alternatives should we pursue? How should those of us promoting stronger local economies measure success?”
~ How We Should Measure Economic Progress, Michael Shuman
How Are We Doing?
Michael first shared his SWOT analysis of our movement.
“My SWOT is hardly comprehensive, but it suggests a movement that is barely past its infancy. When thousands of cities in our country bring together millions of local businesses, when our policy recommendations dominate national policies, when both political parties are courting our support, we will have finally begun to achieve our full potential.”
~ A Report Card on the US Local Economy Movement, Michael Shuman
He followed his analysis with a summary of twelve recommendations for easy-to-measure indicators that we can revisit over time, helping us evaluate our successes and shortcomings and better answer: Is our hard work making a difference in our local economy? These indicators should be quantifiable, robust, and affordable.
“Indicators are best if they are quantifiable. Not: Do you feel like your community is getting better? Do you feel like the local business environment is better? No. Now, those questions really are not terribly quantifiable. But, quantifying the number of new local businesses that we’ve had this year? That is quantifiable.
The second is that we want to focus on robust indicators. And what I mean by robust is that counting the number of German Shepherds in your community will be less important than counting the number of crowdfunding transactions.
And the last thing, which most indicator projects forget, is that the assembly of indicators has to be affordable, because if you have a special indicators project, you’ve raised $200,000 to do it in year one. And when year two comes, and you didn’t get a renewal of your grant, your indicator project is dead in the water.”
Easy Macro Measures
(1) Median Income – Median income shows how much money people living at the 50% percentile make. It’s better than average income or GDP per capita, because a tiny number of gazillionaires cannot really artificially inflate this number. If median income is rising, then all the boats in your economy are probably rising.
Find the data: US Census Bureau.
(2) Inequality — Economists have a specific way of measuring the local economy called the Gini Coefficient. The higher that number, the greater the inequality. You should check whether, over the last five to ten years, your Gini coefficient has been shrinking and whether your community is moving toward greater social equality.
Find the data: US Census Bureau.
(3) Local Business Jobs – Look at the number of jobs in private firms (not enterprises) with fewer than 500 employees, and be sure to add public employees and self-employed people. These firms and institutions are 99% locally owned. The higher the number of these employees—and the higher the percentage they collectively comprise of the local workforce—the stronger your economy will be.
Find the data: US Census Bureau.
(4) Brain Drain – To what extent are young people, especially your most talented, sticking around after high school graduation? Dead-end communities will steadily bleed away young people. Creative, diverse, dynamic communities are those where young people will stay (at least if there’s affordable housing).
Find the data: US Census Bureau.
(5) Survival Rate of Small Business – Look at the number of the smallest businesses in your economy—say, those with under 50 employees. If that number is steadily increasing, then you know that the entrepreneurial ecosystem—including finance, technical assistance, courses, you name it—is performing well.
Find the data: YourEconomy and BDS Explorer.
Hard Macro Measures
(6) Degree of Self-Reliance – The more diverse your economy, the more likely it will retain local flows of purchasing and investment dollars. One simple way of measuring your self-reliance is to compare your economy to the US economy as a whole. Why? Because the US economy is relatively self-reliant, its consumption patterns from place to place are quite similar. If the percentage of your workforce in, say, construction is smaller than the US as a whole, chances are good you are importing work from construction firms outside your community. The smaller your import dependencies, the stronger your economy.
Find the data: US Census Bureau, Implan, Remi AI, and RIMS II.
Easy Local Measures
(7) Number of B-Corps and Benefit Corps – The B-Corp label is the best measuring system for businesses with exceptional behavior benefiting not just investors but workers, community members, and ecosystems. There are now more than 2,000 certified B-Corps in the United States. Thousands more have taken advantage of a less stringent law that most states have set up called “benefit corporations.” The more of these exemplary performers in your economy, the more other local companies will be inspired to improve their own social performance.
Find B-Corps Near You: B Lab.
(8) Business Network Size – Local business networks, like Local First Arizona, can help improve the competitiveness of member firms through joint marketing, joint purchasing, joint contracting, and joint advocacy. The more dues-paying business members of your network (Arizona has nearly 3,000), the more powerful this collaboration can be. A growing membership is evidence that your efforts are paying off.
Find an Independent Business Alliance Near You: AMIBA.
(9) Non-Grant Support of Business Networks – Fifteen years ago, the US had hundreds of local business networks. Most disappeared because they couldn’t develop revenue models beyond fundraising from foundations or government agencies. A business network should strive to provide useful services for its members to justify regular dues. Better still, deploy a business model for your network (like running a buy-local phone app) to diversify your cash flow. (My book, The Local Economy Solution, describes more than two-dozen such business models.) Revenue streams that are not dependent on the whims of grantmakers can ensure the long-term success of your network.
Discover Pollinator Business Models: The Local Economy Solution.
(10) Crowdfunding Investments – To what extent are businesses in your community raising capital directly from community members through investment crowdfunding? Count the number of such raises in your community each year, and the money flowing into them. The bigger these numbers, the more local investment is taking hold. Give your community extra credit if you also have a local investment fund supporting local businesses.
Find Crowdfunding Campaigns Near You: The Main Street Journal
(11) Corporate Attractions – Ultimately, a local economy can benefit from a supportive economic development department. And there is no surer sign of indifference or hostility to local businesses than awarding huge incentives (grants, tax breaks, capital improvements) to large, nonlocal companies. The less of this activity, the more likely your economic development establishment will be laser-focused on the health and expansion of local small businesses.
Find the data: Subsidy Tracker.
Hard Measures
(12) Public Procurement – What percentage of your local government’s purchasing is going to local businesses? The higher that percentage, the stronger the multiplier effect on income, wealth, and jobs. The City of Preston, England, for example, increased its local procurement from 5% to over 18%, injected tens of millions of new pounds annually into the local economy, and created 4,000 new living-wage jobs. My recommendation is for your city council to order that procurement data be made publicly available.
Share this model: NM State Auditor’s Office Report.
And last but certainly not least…
“Now, I’ll say finally that there are a hundred other indicators that I could plausibly recommend to you. And part of the fun of doing this is sorting out which are the indicators that would be most meaningful for people in your community and have the most importance.” ~ Michael Shuman