8/16/99

KUFM / KGPR

T. M. Power

Mistaking Small Towns for Small Economies

Some of the scariest economic projections result when small towns are treated as self-contained economies. If, for instance, Frenchtown or Bonner, two small towns outside of Missoula, are treated as independent economies, the impact of potential layoffs at either their paperboard or wood products mills can only appear catastrophic. Those mills are the only major employers in the towns and mill employment levels are huge compared to the size of the towns. Similar things could be said about any number of small towns, for instance Pablo just south of Flathead Lake or Darby at the south end of the Bitterroot Valley.

Some economists working for the wood products industry regularly generate exactly such projections. They told us that if National Forest timber harvests were cut by half or three-quarters relative to their past peak levels, forty to sixty percent of employment and income would be lost in various small mill towns. With most jobs and pay eliminated, it was easy to imagine imminent ghost town status for those towns.

Fortunately for these communities, nothing of the sort has happened after National Forest timber harvests fell to near zero and have remained a fraction of what they once were. The ongoing economic vitality of these small towns, despite the loss of most of their previous National Forest timber harvest, has surprised many observers, including the residents of those towns.

It is not just timber towns that have surprised pessimistic observers: In the early 1970s the Anaconda Copper Company was projected to make up 75 percent of the Butte-Anaconda area’s economic base. By the early 1980s that company ceased to exist, the smelter was gone, and most mining had stopped. But Butte did not become a ghost town.

How can this small town stability in the face of catastrophic declines in natural resource activity be explained?

The biggest error made in generating the doom and gloom economic scenarios was to treat the small towns as independent economies. The fact is that most of the people who work in a small mill town do not live in that town. They commute in from other areas, some quite distant from the mill town. Those who live in or near the small towns usually do not work in the towns. They too commute to their jobs elsewhere. Those who shop in the small towns often have no economic connection at all with the mill. The town is a trade center for a much larger geographic area; it does not just serve those who live in the town and certainly does not primarily serve the employees of the mill. The small town is just one node in a complex web of regional economic relationships. Our population’s high mobility and willingness to drive 25 or 50 or 100 miles to shop and work make our functional regional economies very large in geographic terms.

If we define an economy as a set of economic interdependencies, then we have to draw the boundaries around the economy wide enough so that most of the local interdependencies are included within those boundaries. That is why a small town cannot be treated as an economy by itself. If we draw a small circle around the town, we will miss most of the economic transactions that make that town tick. We will also miss most of the economic impacts associated with the mill that happens to be located there.

This is a widely recognized feature of regional economies. The federal Bureau of Economic Analysis seeks to define functional economic regions by studying the geographic extent of our shopping and commuting patterns. The idea is to make the economic region large enough so that most commuting to work and shopping are contained entirely within that region. When western Montana is studied in this way, a relatively large geographic area is needed if most economic interdependencies are to be accounted for. For instance, the Missoula economic region includes not only the Bitterroot Valley but also stretches up into the Flathead Valley and sprawls east and west on the Clark Fork. To the south and east of the Missoula economic region used to be a set of counties surrounding Butte that the Bureau of Economic Analysis identified as a separate economic region. More recent analysis in the 90s indicated that commuting and shopping patterns involved considerable interchange between and within the Missoula and Butte economic regions and, as a result, the Bureau of Economic Analysis has now merged them into a huge, sprawling economic region that encompasses most of western Montana. The Spokane economic region on the other side of the mountains also sprawls over the north Idaho panhandle and most of eastern Washington.

Recognizing these complex economic linkages between and among our towns is extremely important when forecasting the impacts of changes in a particular local economic activity like logging or mining or manufacturing. The impacts of these changes get spread over a much larger geographic area and a much larger and more diverse economy. As a result of its size and diversity, that regional economy is much more stable and resilient. It does not rely on only one mill or only one industry. The range of economic opportunities is also far larger that what one finds in any particular town or any particular industry. Within that larger regional economy some jobs are being lost every week while other jobs are being created.

The larger size of the regional economy allows it, in the aggregate, to become more self-sufficient. With a larger population within economic reach, the regional economy can provide a fuller array of retail trade and services, allowing dollars to circulate longer and generate more jobs before leaking out. That more complete set of commercial and cultural opportunities, in turn, attracts new residents and businesses.

Some would have us focus narrowly on those small towns that are dominated by large industrial facilities and ignore the larger economy in which they are embedded and by which their impacts are buffered. That may serve special political needs by helping to generate fear and insecurity in support of the status quo, but it is a terrible economic blunder. The proof of that has surrounded us in the 1990s as we have wrestled with the problems of growth rather than with the problems of economic depression. Despite literally decades of preaching doom and gloom, the economic sky still has not fallen.