Community economics

Community Economics: Definition, Example, and FAQs

Community economics is an interdisciplinary field within economic development that focuses on building wealth, increasing opportunity, and improving the quality of life within specific geographic areas through collective action and local resource utilization. It emphasizes bottom-up, participatory approaches to foster sustainable economic systems that directly benefit residents and enhance the well-being of the entire community, rather than solely focusing on aggregate economic indicators. Community economics recognizes that economic growth is intertwined with social, environmental, and cultural factors, aiming for equitable and inclusive outcomes.

History and Origin

The concept of community economics, often discussed interchangeably with "community economic development" (CED), emerged in response to persistent poverty and the need for improved quality of life in disadvantaged areas. Its roots in the United States can be traced back to the late 19th and early 20th centuries, when reformers began to connect community conditions with social issues like poverty and proposed comprehensive strategies for improvement. The Progressive Era saw efforts to address overcrowded, unhealthy, and impoverished communities near industrial centers.

A significant shift occurred during the 1960s with the rise of comprehensive anti-poverty strategies, including New Deal programs and the establishment of the Office of Economic Opportunity's community action agencies as part of President Johnson's War on Poverty in the 1960s¹⁴. These initiatives provided funding and emphasized local participation in addressing social and economic challenges¹³. Over time, philanthropic organizations, such as the Ford Foundation, became instrumental in supporting community development programs, providing financial backing and advocating for policies that focused on affordable housing and support for small business development¹¹, ¹². Similarly, the Federal Reserve System established a Community Development function following the Community Reinvestment Act (CRA) in 1977, promoting economic growth and financial stability in low- and moderate-income communities by connecting financial institutions with local needs¹⁰.

Key Takeaways

• Community economics prioritizes local control and participation in economic decision-making.
• It seeks to build local assets and address issues such as poverty, unemployment, and lack of affordable housing.
• The approach emphasizes creating interconnected, resilient local economies.
• It integrates social and environmental goals with economic objectives, aiming for a "triple bottom line" of people, planet, and profit.
• Community economics often involves partnerships among residents, local businesses, non-profits, and government entities.

Formula and Calculation

Community economics does not have a single, universal formula or calculation like financial ratios or valuation models. Instead, its success is typically measured through a combination of quantitative and qualitative indicators that reflect improvements in local well-being and economic vitality. These indicators might include:

• Job creation/retention: Number of new jobs created or existing jobs retained within the community.
• Income growth: Changes in median household income or per capita income for residents.
• Poverty reduction: Decrease in poverty rates.
• Business starts and expansions: Number of new entrepreneurship ventures or existing business growth.
• Asset building: Increase in community-owned assets, such as community land trusts or cooperative enterprises.
• Social capital indicators: Measures of community cohesion, civic engagement, and trust.
• Access to services: Improvements in access to education, healthcare, and financial services.

These measures help assess the overall social impact and economic health of a community.

Interpreting Community Economics

Interpreting community economics involves assessing how well a local area is generating and retaining wealth in a manner that benefits its residents broadly. It moves beyond traditional economic indicators like Gross Domestic Product (GDP) to consider factors such as equitable distribution of benefits, environmental sustainability, and the strength of social networks. For instance, a community economics approach might evaluate whether new businesses are locally owned and provide living wages, rather than just focusing on the total number of businesses. It also considers how well the community's human capital—its residents' skills and knowledge—is being developed and utilized. The interpretation often involves gathering input from diverse stakeholders to ensure that development efforts align with community priorities and needs.

Hypothetical Example

Consider "Oakwood," a small town that has experienced economic decline due to the closure of its main factory. Traditional economic development might focus on attracting a large, external corporation with tax incentives. In contrast, a community economics approach for Oakwood would involve the following steps:

1. Community Assessment: Local leaders and residents conduct a comprehensive assessment to identify existing assets, resident skills, and unmet needs. They discover a strong tradition of local craftsmanship and a desire for more community-gathering spaces.
2. Strategic Planning: Based on the assessment, the community decides to foster a co-operative economy model. They identify opportunities to support local artisans, establish a community-owned food co-op, and redevelop a vacant factory building into a multi-use community hub with workshops and retail spaces for local products.
3. Resource Mobilization: Residents pool small investments, apply for grants from philanthropic organizations, and partner with local financial institutions for micro-loans.
4. Implementation and Support: A local non-profit acts as a fiscal sponsor and provides technical assistance for new artisan businesses. Workshops are offered to residents for skill-building and business management. The community hub creates job opportunities in retail, event management, and maintenance.
5. Ongoing Evaluation: The town regularly tracks metrics like the number of successful artisan businesses, local purchasing rates at the food co-op, and attendance at community hub events. They also conduct surveys to gauge resident satisfaction and sense of belonging.

This approach aims to create a more resilient and self-sufficient Oakwood, where economic benefits circulate within the community and residents have a direct stake in its prosperity.

Practical Applications

Community economics is applied in various real-world settings to foster local prosperity and well-being.

• Community Development Corporations (CDCs): These non-profit organizations are a cornerstone of community economic development, engaging in activities such as affordable housing development, commercial revitalization, and job training programs in specific neighborhoods.
• Local Food Systems: Supporting local farms, farmers' markets, and community-supported agriculture (CSA) initiatives helps to keep food dollars circulating within the community, creates local jobs, and improves access to fresh produce.
• Worker Cooperatives: Businesses owned and democratically controlled by their employees exemplify community economics by distributing profits and decision-making power among local workers, ensuring wealth retention.
• Impact Investing: This involves directing capital to businesses or projects that generate positive social and environmental outcomes alongside a financial return. Community development financial institutions (CDFIs) are key players, providing capital to underserved communities.
• Public Policy Initiatives: Governments at local, regional, and national levels implement policies to support community economics. For example, the Organisation for Economic Co-operation and Development (OECD) provides frameworks and case studies for local economic and employment development policies across its member countries, emphasizing integrated approaches to job creation and economic resilience. Th⁹e Federal Reserve's Community Development function also works with various partners, including financial institutions and non-profits, to promote financing for low- and moderate-income communities.

#⁸## Limitations and Criticisms

While community economics offers many benefits, it also faces limitations and criticisms. One significant challenge is securing adequate and sustainable funding. Many grassroots initiatives and community organizations operate on limited budgets, relying heavily on grants, donations, and volunteers, which can make long-term planning and scaling difficult. Ex⁷ternal funding, while crucial, can sometimes lead to short-term project focus rather than sustained community-building efforts.

A⁶nother critique involves the potential for limited managerial skills and technical expertise at the local level, especially in complex projects. So⁵me models of community development have been criticized for over-idealizing small size and potentially offering limited capacity for larger-scale impact. Ad⁴ditionally, there can be a tension between economic growth and social equity, where development projects might inadvertently lead to gentrification or displacement of existing residents if not carefully managed with an inclusive framework. Ac³ademic discourse also highlights that "community" can sometimes impede factor mobility, which is seen as crucial for long-term economic growth by some traditional economists. It² is important for community economics efforts to continuously engage with residents to ensure that development truly serves the needs and aspirations of the local population.

Community Economics vs. Local Economic Development

Community economics and local economic development are closely related fields that often overlap, leading to some confusion. However, their primary distinctions lie in their emphasis and approach:

While local economic development often seeks to improve a locality's economic position by attracting outside capital and businesses, community economics focuses on cultivating internal strengths and ensuring that economic activities directly empower and benefit local residents, fostering self-reliance and collective prosperity. Community economics is often seen as a blending of the traditional community development focus on building community assets and institutions with the economic development goal of creating economic opportunity.

#¹## FAQs

Q: What is the main goal of community economics?
A: The main goal of community economics is to build inclusive, resilient, and sustainable local economies that enhance the overall well-being and quality of life for all community members, rather than just focusing on aggregate financial metrics.

Q: How does community economics differ from traditional economic development?
A: Traditional economic development often focuses on attracting large businesses and external investment to a region, aiming for broad [economic growth]. Community economics, by contrast, prioritizes local control, resident participation, and the cultivation of internal assets and [local businesses] to ensure that economic benefits directly accrue to the community and its people.

Q: Can community economics work in both urban and rural areas?
A: Yes, community economics principles are applicable to both urban and rural settings. In urban areas, it might address neighborhood revitalization and access to services, while in rural areas, it might focus on supporting local agriculture, small-town businesses, or retaining youth.

Q: What role do residents play in community economics?
A: Residents play a central and active role in community economics. They are often involved in identifying community needs, planning initiatives, making decisions, and participating in the [grassroots initiatives] and enterprises that drive local economic activity. Their collective action is fundamental to the approach.

Q: Is community economics only for disadvantaged communities?
A: While community economics often addresses the needs of low-income or marginalized communities to reduce disparities and promote equity, its principles of local control, asset-building, and sustainable development can benefit any community looking to strengthen its local economy and improve collective well-being.