How and why did energy-producing states skirt the US recession?

October 25, 2010 |

A new Biofuels Digest report found that states that produced enough energy to meet their internal demand for gasoline maintained growth rates 2.5 times above the national average, and either completely avoided the 2007-09 recession or experienced a lighter version of it. These states maintained a GDP growth in 2007-08 at five times the rate of states that were less than 20 percent energy independent.

You can download your free copy of the statistical analysis, here.

The report, which looks at both ethanol and crude oil production as a source for E10 gasoline, compared energy production and state GDP growth for 2007-08. Only coal-rich West Virginia sustained an annual GDP growth rate above 2 percent  while providing less than 40 percent of its own gasoline through in-state production. North Dakota, which averaged 6 times as much fuel production as consumption, recorded growth rates over seven percent.

Some of this impact comes from the rising prices of fuel itself, but Alaska, which generates nearly half its GDP from fuel, experienced a GDP drop of 2 percent in 2007-08.

Who went into recession, who avoided?

As the Digest discovered in its investigation, the patchwork of states that were doing well and those that were in trouble – as the country began to fall into recession in 2008 – didn’t make sense, by traditional measures.

In the Midwest, Missouri badly trailed states like North and South Dakota, yet every state on the plains stayed out of recession while Michigan and Ohio tumbled in. In the Southeast, traditional growth engines Georgia and Florida went into early recessions, yet Mississippi and Arkansas were still growing. Why was Wyoming soaring while Idaho was flat?

From a statistical point of view, the key was the level of domestic energy production, but to understand the trend at the human level, throughout September and October of this year, the Digest undertook an investigation of the recession, and the impact of energy independence. Over a number of weeks, we visited with businesses, farmers, economic development leaders, bioenergy producers, local officials, and researchers, in Iowa, South Dakota, Minnesota, Nebraska, Tennessee and Florida.

The result is our series, Revival!, which debuted last week with a look at the economic impact of Algenol Biofuels on efforts to diversity the economy of Lee County, Florida.

Six Key Factors

Derived from its interviews, the Digest identified six factors key to the economic revival, and recession resistance, or rural economies in the six states visited in our survey.

1. Investment retention. Communities that reduced the outflow of dollars for energy costs – either through the development of fossil fuels production, or bioenergy and wind, kept their petrodollars home, where they were reinvested in the community to foster local growth.

2. Diversification. Communities that diversified from agriculture into biotechnology, life sciences and bioenergy reduced the drain of talent and the break-up of families

3. Good neighbors make good economies. The targeting of technologies, and the construction of industrial parks and shared resources – turned the attraction of one key company or technology into several allied technologies. They valued the skilled workers, community support, existing infrastructure, tax breaks, and opportunities to share cost with neighbors as new infrastructure needs emerged.

4. Targeted economic revival funding. Projects like the Iowa Power Fund have had a strong impact in attracting companies like POET, DuPont, and Danisco in their site evaluation process.

5. Connections. The launch of technology centers of excellence to foster pilot projects and cross-training of personnel. Centers like Iowa’s BECON – which combine the incubation of technologies with the infrastructure and resources needed for bench- and pilot-scale testing and development, have had a powerful “magnet” effect in drawing talent and projects away from traditional technology development centers in Silicon Valley and the East Coast. The flow of early-stage investor dollars, research funding, and the appearance of new high-tech workers, further diversified small communities and stiffened resistance to the economic downturn.

Further, states that connected its top university research programs and its development opportunities with key clusters, provide a key competitive advantage for communities and states that would ultimately resist recession.

6. Give-back to the community – communities that gave strong, remained strong. Wed found that strong community spirit, and the presence of strong community values, was a striking feature of successful communities that were growing through the recessionary period. Especially we noted that cohesive communities, bound by shared values, were more committed and successful in attracting new business.

In our series, which will be published over the next two weeks in three more installments, we will look specifically, at a series of communities, some of which featured bioenergy projects, some which did not.

“Never Again”

In our investigation, we discovered a direct link in resisting recession back to the farm crisis of the 1980s. A “never again” attitude for some communities and states resulted in a series of efforts, and (more importantly, a community spirit) that would proudly build off a base in agriculture while not being limited to it, and would diversify, yet stay close to a nexus of technologies impacted by the life sciences – diversifying into bioenergy on the one hand, while also building up in fields as varied as financial services and IT where those sectors were also impacted by the revolution in biosciences.

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