Economic diversification makes rural communities less vulnerable to economic variability, according to the latest edition of Rural and Small Town Canada Analysis Bulletin.
The authors, Marjorie Page and Roland Beshiri, measured diversification using the Herfindahl index, which is a measure of concentration of the production in an industry that is calculated as the sum of the squares of market shares for each firm. (This is an alternative method of summarizing the degree to which an industry is oligopolistic and the relative concentration of market power held by the largest firms in the industry. The Herfindahl index gives a better indication of the relative market control of the largest firms than can be found with the four-firm and eight-firm concentration ratios.)
For regions (“census divisions”), levels of diversification did not change much from 1981 to 1996. However, ranges did change and expand over the period. There were even larger ranges for communities (“consolidated census sub-divisions). Significantly, there was a large range of variation for communities even within regions. Between 1986 to 1996, about 64% of rural communities diversified while the rest specialized. Most rural communities were already quite diversified and became more so.
Town folk listen to policy “wonks.” When these experts praise diversity, they shift to coffee-shop opinions in downtown Tinysask. Joe says it’s better to have new businesses come in from away. Dana decries the old businesses that don’t create a new image for the community. Carl opines that getting a widget factory to move from Brampton would help local employment. Joan adds that her kids might then be able to stay in town. Tom thinks the town needs tourists. Mary likes Big Macs and wants a McDonald’s in town. The folks in Tinysask will then buy from newer businesses, support new-business-promoting politicians, and let older businesses stagnate or flounder.
The story of greater Sudbury, in Ontario, is a case in point. It too was considered deprived. Fifteen years ago, a government report argued strongly that Sudbury was too specialized in, and dependent on, mining — it needed to diversify. As a result, the community concentrated socially and economically on promoting non-mining-industry development. It has been doing that for a decade, and the population is still shrinking.
It took David Robinson, an economist who teaches at Laurentian University, to point out the flaws. Growth requires markets. If you produce the same stuff as Toronto, you will have to compete with Toronto producers, and Toronto producers, compared with those in both Tinysask and Sudbury, have easier access to cheaper products, better legal, accounting and architectural services, and greater access to qualified labour. Markets are nearer, advertising more accessible, and transportation cheaper. Indeed, sometimes I think the diversification theory is really a Toronto-Ottawa plot to keep southern Ontario on top!
Claude Vincent and David Robinson, writing for the Institute for Northern Ontario Research and Development in October 2000, compared the Herfindahl index for industry over time in census metropolitan areas. They found no clear relationship between the Herfindahl and the amount of unemployment. They went on to argue that diversification would neither solve Sudbury’s economic woes nor reduce unemployment.
Page and Beshiri present new information on diversification and employment growth. Their calculations suggest that 65% of the diversifying communities had a growing labour force, whereas 62% of the specializing communities had a growing labour force. Such a small difference (only 3%) supports the Vincent-Robinson conclusion that diversification does not really help employment growth.
Robinson advocates an alternative economic idea: “cluster development.” He wants to promote the mining-supply-and-services cluster. Clusters are groups of related and connected industries that share reliance on common labour, skills, products, or process requirements and hence help support each other’s conditions of existence even though they are competitors.
Develoopment of such symbiotic, webbed businesses can propel communities and regions into distinction, making them better and more attractive than Toronto and Ottawa for products linked to their clusters. They’ll be able to compete, prosper, develop and grow.
The New Rural Economy research project, directed by William Reimer from Concordia University, suggests rural areas need to find a way to parlay their resources and amenities into economic initiatives by developing connections with specific urban areas. Globalization and the information economy mean communities cannot succeed without market involvement and specialization. That fits with the cluster view.
Not every community can create a cluster. Just as there is a wide variation among diversities, there are also variations in other necessary characteristics, such as skill in governance and social cohesion. For many areas, working out how to have the private sector, the public sector, and the voluntary sector co-operate and support each other will be crucial in achieving a plan and a direction. Clusters are not for every community.
To understand an answer, you need to know what the question was. I surmise that the Page-Beshiri question was: How can we protect the current state of our community from the influence of global market shifts, currency crises, and distant political decisions? Diversity is the answer. The Robinson question is: How can we reverse Sudbury’s population decline and inaugurate a few decades of healthy economic growth and rising employment? In this case, diversity is not the answer. Why would anyone expect the answers to be the same when the questions are so different?
— The author is the director of the Institute for Northern Ontario Research and Development at Laurentian University. He can be reached by e-mail at dwilkinson@ laurentian.ca. A copy of Page and Beshiri’s latest study is available by visiting www.statcan.ca
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