Terminology and Definitions in Field of Community Economic Development

Centre for Community Enterprise

by Stewart E. Perry

Because community economic development is a changing and complex field, not yet fully systematized conceptually, people do not necessarily agree on the precise meaning of the terms used. Even some practitioners, closely related in particular subfields, do not agree among themselves. Even the term "community" is used in at least two different senses, as noted below, and can have very different implications in practice.

I offer the following set of terms and definitions as a way of making some important distinctions in the actual practices that occur in the field. They particularly make a difference when it comes to determining who are the beneficiaries, what are the benefits, and where the ownership resides for the assets created by the activities concerned.

Rather than arrange the terms alphabetically, I have chosen to present them in an order which permits a meaningful development of conceptual distinctions.

COMMUNITY

Whether considered as the base for business development or economic development, community is commonly used in two very different senses. Each is quite reasonable, but they need to be clearly differentiated.

One meaning refers to any category of people who are related to each other by virtue of specific common interests and values (for example, the disabled, the members of the Catholic Church, women, Cambodian immigrants, low-income people, artists).

The other meaning specifies a category of people who are related to each other by virtue of living in the same particular locality (which implies that they also have some shared values and interests, arising from their common locality).

The first meaning has a more limited and perhaps a more specific target for the beneficiaries of development activities; the benefits or any ownership of assets created by the activities are fairly readily assigned. But in the second meaning, some benefits may be rather generally and indirectly assigned to all the residents of the entire locality, while other benefits may go directly to specific residents.

ECONOMIC DEVELOPMENT

Economic development refers to the deliberate effort to improve the economy of a specified geographic area, which can be as large as an entire nation-state or as limited as a city neighbourhood.

Benefits, beneficiaries, and ownership can differ from case to case. The intended economic improvements themselves will also vary from case to case. Indeed, one of the problems in the process is how to define the measures that would indicate whether or to what degree any improvement has taken place.

Note that while economic development can be a specifically undertaken activity, the same intended consequences might also take place spontaneously, without any deliberate efforts to achieve them. However, the fact that desired improvements do not often appear spontaneously is the reason that the deliberate practice of economic development has arisen.

COMMUNITY ECONOMIC DEVELOPMENT

Sometimes called "community-based economic development" and abbreviated as CED, this specifies the geographic target of economic development activities as a rather limited locality. (Note expressly, as presented here, "community" in CED is defined in the second sense.)

CED will involve a comprehensive, wide-ranging program of activities for the overall improvement of the locality as a place to live and work. Because it is comprehensive in approach, it can include virtually any activity that might be seen locally as community improvement (for example, promoting a folk opera, drug abuse services, increased police protection, housing rehabilitation). But CED always includes some type of business development activity (and may therefore employ any of the business development activities described below.)

From such a wide range of potential activities, the over-arching goal of CED can be inferred in a technical sense as the creation of more powerful institutional levers, or in short, improved community tools. These can be new businesses, improved local facilities, changed practices by established institutions like banks, or other evidence of improved tools for making the community a better place to live and work. Thus the root measure of success is the extent and depth of such community tools, rather than a single dollar figure of some sort.

CED in its most effective form embodies the following features:

It is always a multi-functional strategy or development system, as contrasted to an individual economic development or business development project or other isolated efforts for community betterment.

The basic range of functions includes specific operations (or partners) for equity investment in venture and property development; lending or other credit assistance for local businesses; human resource development via training, or counselling, or other services; and local capacity building via advocacy, research, or other community services.

It specifically integrates or merges social and economic goals in order to make a more powerful impact for community change and revitalization.
It involves activities that empower the broad range of community residents for the governance both of the development organization and of the community as a whole.
It is a process guided by strategic planning and analysis, in contrast to merely using fortuitous or opportunistic choices and unsystematic tactics.
It uses a businesslike financial management approach that builds ownership of assets and a wide range of financial partners and supporters.
It employs a core-organization format that is nonprofit, independent, and non-governmental, a format frequently known as a community development corporation or CDC.

In CED, ownership begins at the (usually) private, nonprofit community development group that guides the program. However, ownership may extend to individual resident entrepreneurs and even to outside companies in partnership with the development group. The wide-ranging nature of potential activities means that the benefits will vary widely, depending upon the group's strategy and priorities. But, importantly, business development is expected to result not only in ownership opportunities and profits but also in some wider social benefits. Similarly, although the intended beneficiaries are primarily residents, particularly the disadvantaged sector, others may also benefit as a collateral spin-off of the strategy.

LOCAL ECONOMIC DEVELOPMENT

The reference of this term is very close to community economic development in that it targets a specific fairly limited locality for more than a single project approach. Where it differs most is in the usual governance structure. That is, as a program, "LED" is generally carried on by a local government (or quasi-governmental entity) or by a business consortium such as the local Chamber of Commerce.

The lack of participation in governance by a broad range of community residents tends to mean that both ownership and the program's activities may be relatively limited, thus reducing the spread of benefits and beneficiaries. Moreover, without broad citizen participation, LED tends to be a less comprehensive strategy, involving fewer different functions.

INDUSTRIAL DEVELOPMENT

This term is considerably more limited than economic development, since it singles out only one particular sector of an economy for improvement. Improvement is defined as an increase in activity (or in numbers) of industrial entities, ordinarily conceived as manufacturing firms in distinction to firms in the service sector like banking or retail stores.

In non-socialist states, industrial development implies only private enterprise, but the process is nevertheless governmentally assisted and directed, at the very least by some "industrial policy." Government direction is most visibly the case when industrial development is targeted to a geographic area less than the nation-state as a whole. Thus most training programs in industrial development practice prepare "developers" especially for municipal settings. Again, ownership, benefits, and beneficiaries will vary from case to case.

BUSINESS DEVELOPMENT

Business development encompasses activities that seek either to create or attract new business firms or to enhance existing ones to make them stronger or larger. Thus business development is a more limited strategy than economic development. However, clearly, more than industries are involved in the term "business." The sector includes all types of entity that offer goods and services.

Business development can include many sorts of specialized activities, such as administering loan funds or venture capital funds, providing training in business management, helping to do market studies, establishing industrial parks or business incubators, or facilitating networks and organizations of businesspeople. It may also include the attempt to use location incentives to attract new businesses from outside the area.

The benefits can include:

an increase in business activity in the target locality and all the related indirect effects of that.
an increase in opportunities to participate in business ownership and management.
an increase in the variety of goods and services produced in the target locality.
an increase in the number of different levels of quality (and price) in locally available goods and services.
(often of the highest importance) an increase in employment opportunities for local residents.

Who are the expected beneficiaries? Obviously that will depend upon the type of activity and the intentions of those carrying out the business development activities. For example, the beneficiaries potentially could be quite specifically restricted to residents of a particular locality, if the program is sponsored by a city government; or to adherents to a particular religious or ethnic orientation, if sponsored by a Black Muslim church or a Chinese benevolent association; or to other categories of people, such as youth or women or recently downsized employees of a particular company, etc.

The ownership involved is usually that of conventional private enterprise, that is, individuals, groups, or shareholders. However, ownership may lodge only in the community development group itself.

COMMUNITY BUSINESS DEVELOPMENT

This term usually refers to activities that promote businesses (community businesses or community enterprises or community ventures) which will be owned and operated by the residents of a particular (usually disadvantaged) locality. The promotion may include any of the specialized activities of business development, as already described.

Although the ownership is expected to involve local residents, this may be in many different formats: nonprofit ownership by a locally-controlled social agency or development group; private for-profit ownership by local entrepreneurs; a combination of both; or ownership through a co-operative. The prime beneficiaries are also expected to be residents of the specific local community, who will experience a range of many different benefits. The benefits might include potential profits for the owners, increase in local employment opportunities, greater local access to goods and services, or revenues to support a social agency and its work.

MICROENTERPRISE DEVELOPMENT

This is a particular subset of business development activities that seeks to promote new or enhanced very small businesses. The activities are usually limited to offering credit, technical assistance, and training. They are intended to increase ownership of businesses by local individuals and, perhaps, families, but almost always lower-income people.

The benefits are most usually the self-employment (and also greater skills and self-empowerment) of the owners. But to a very limited extent, additional jobs may arise and also an increase in the local availability of goods and services. The beneficiaries are almost always low-income, especially the unemployed or welfare recipients or relatively unskilled new immigrants.

TRAINING BUSINESSES

Developing this specific sort of business is intended to provide a setting in which a targeted group can get skills in the tasks required for the particular business concerned and thus get prepared to go on to jobs in other firms (or perhaps more advanced training).

So-called training businesses often are not expected to make a profit or even to break even, and thus they are operated only by virtue of some government or private subsidy which is justified by the training results.

Training businesses are usually established for young people as the beneficiaries, with the benefits for them of learning job skills and some minimal income. The businesses may, however, target other needy groups, such as those with emotional problems or physical handicaps. Ownership is not an issue here. It will almost always rest with a sponsoring nonprofit organization, unless the business itself is a stand-alone nonprofit. Training businesses differ from "sheltered workshops" in that beneficiaries of the latter are not usually expected to go on to other jobs or training; they instead remain indefinitely at the workshop.

WOMEN'S ECONOMIC DEVELOPMENT

This is a program specifically geared to increase the economic opportunities for women. It may include any of the specialized activities already described for business development, but it may also include other kinds of supportive services such as consciousness-raising workshops as a preliminary to business development work.

Technically, to be considered as more than women-oriented business development, such a program would have to be concerned with other activities addressed to non-business goals, such as increased political visibility. Ownership of any businesses created is expected to reside in individual women, but it may be lodged in a women's nonprofit organization or a women's co-operative. (On rare occasions, ownership is also held in part by men who are business partners of the assisted women).

The benefits include business ownership, employment (including self-employment), and, generally speaking, women's empowerment. The intended beneficiaries are, of course, primarily women, but may extend beyond to the community at large or to any men involved as employees, partners, or customers of the women-owned businesses.

WORKER CO-OPERATIVES

The worker co-op is a particular structure of business venture in which all of those employed in any position throughout the firm participate equally in ownership and governance. (Workers usually have to go through a probationary period before participating fully.)

The prime beneficiaries are, of course, the employees of the business. The benefits of this kind of structure are expected to be more than economic, in that the people involved will also gain skills in democratic decision-making and other citizen concerns. But primarily the benefits are seen as employment, with the dollar returns for the employment varying with the performance of the business and often with the particular task performed by the worker in the business.

The worker co-op is differentiated from other "employee-owned businesses" by virtue of equal ownership shares. (The more generally styled "employee-owned business" may offer opportunities for varying shares of ownership.) With the co-operative, the activity always involves operating a single business, but a few employee-owned businesses have been multi-firm conglomerates. While worker co-ops may be linked to each other for mutual advantages, they operate as single businesses.

Note that establishing a co-operative (including even a worker co-op or a credit union) is not CED as such, even though it is clearly community-based. Specifically, a co-op is a single-function organization (established to run an apartment house or other housing, or to operate a grocery store or other consumer facility, or to carry out a worker-owned business, etc.), while CED is a multi-functional strategy, involved in many different types of ventures, programs, and activities.

However, some co-op systems, like Mondragon in Spain or Evangeline on Prince Edward Island, do involve a variety of functions and comprehensive development and are therefore quite clearly a CED program. Such systems are rare. Ordinarily the co-op is a stand-alone project, even if it is a part of a group of similar co-ops (like a network of credit unions). Yet a CED program with its own comprehensive agenda could include working with local co-ops as valuable partners.

Former director of the Community Economic Development Center in Sydney, Nova Scotia, STEWART PERRY continues to work as a CED researcher, advisor, and commentator, and an associate of the Centre for Community Enterprise. Stewart encourages readers to take issue with his outline. He would be pleased to hear from anyone who would like to argue a point and help make the field more systematic. Contact him at (tel/fax) 617-697-7614 or by e-mail.