Economic Architecture

The Entrepreneurial City and Other Choices

What Makes a City Entrepreneurial?

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In Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain? Edward Glaeser and William Kerr report that high levels of entrepreneurship, measured by the number of smaller firms, are correlated with regional economic growth. This finding is not surprising, it really confirms what many people have believed for decades and it supports a body of research going back nearly 30 years. What this report does well, however is that it is very rigorous and delves into the questions of why places have different levels of entrepreneurship.

In commenting on this report, David Luberoff, Executive Director of Harvard University’s Rappaport Institute for Greater Boston delves into another side of the question which is what we can do to promote growth. However, Luberoff is not as rigorous in proposing or dismissing various strategies.

He briefly discusses four policy options for local communities.

Attracting large, mature firms.
Public venture investment.
Improving quality of life.
Subsidizing local universities.

Luberoff dismisses the first two and focuses on the third and fourth options. Unfortunately this kind of binary (do this / don’t do that) approach is too simplistic. You have to do a lot of things well and can’t simply choose one or another from a limited set of options.

In light of the evidence from Glaeser andKerr it may not make sense to invest solely in attracting large, mature firms, but that doesn’t mean that you don’t do it at all. Adding one or two large firms that fit well into local growth clusters can provide many benefits. They add reach and depth to the labor market and provide a pool of workers that can fuel growth in smaller firms.

On public venture investment, Luberoff cites the “failure” of the effort by Japan’s MITI. He ignores the track record of success compiled by a variety of programs elsewhere. There are a myriad of successful programs that have assisted entrepreneurial growth through a combination of investment and mentoring. There are models that have worked to varying degrees, such the Ben Franklin Partnership in PA, KTEC in KS, USTAR in Utah, OCAST in OK, TEDCO in MD, MassTech, and more. I am not saying that citing six examples proves my case and dismisses this argument, but I am saying that we need a more careful assessment of whether these programs work and under what circumstances that succeed or fail. One case, or six does not make the case.

On quality of life, I agree. When is it a bad idea? OK, but you can still do a poor job on quality of life if you invest in recreational assets and starve education or pursue high profile “amenity” developments while basic services crumble.

Local support for universities is also a good idea, but it is not an unqualified good idea. Not every university provides the same level of ROI for the region. Maryann Feldman demonstrated this in 1994 in the case of Baltimore and The Johns Hopkins University. This has been followed up by Heike Mayer’s work on region’s that have developed as tech hubs without a significant research university.

There is no silver bullet answer to promoting growth or entrepreneurship, which is but one path to growth among many alternatives. Whichever path you choose, however, you have to be able to do many things well to enjoy sustainable growth and prosperity. A little luck doesn’t hurt either.

Kansas City’s Power and Light District: Too much hope or too much hype?

Published 03.02.10 Case Study , Communities , Economic Development , News , Strategy , Uncategorized Leave a Comment
Tags: analysis, economic development, economics, policy

An empty bar in the Power & Light District

By Jerry Paytas

Kansas City built a big entertainment complex called the Power & Light District. Funding for the project came from bonds backed by Tax Increment Financing (TIF). TIF assumes that the project will generate tax revenue to pay back the bonds, but when it doesn’t work, someone has to cover the shortfall. In this case the burden falls on the Kansas City taxpayers.

TIFs work best when they finance projects that boost taxable property values and other taxable revenue streams, but in order to do that, the underlying activity has to provide an economic boost within and outside the TIF boundaries. Retail and entertainment projects are not economic generators, they are economic recyclers.

Sure, in some cases entertainment is a lure for tourism, as is the case in Las Vegas or Atlantic City as well as a few other resort destinations. However this strategy really only works when you can create a true destination. Furthermore, if you look at the economies of the tourism led communities you find a lot of low wage jobs and underemployment. The McDonalds at the beach might pay $2-$5 an hour more than the McD’s at home – but that might be the best job you can get there.

So Kansas City is learning the hard way that it is not so easy to eat, drink and dance your way to growth.

Energy Savings Through A Cooperative Approach

Published 02.18.10 Communities , Economic Development , Green & Sustainability , Science & Technology Leave a Comment
Tags: Business Creation, Business Retention, Community, economic development, Energy, Innovation, policy, Science and Technology, Site Selection

By Stephen McKnight
GSP Consulting has contributed again this year to the Annual Industrial Site Selection Survey conducted by Area Development Magazine. While the overall rankings are similar to last year’s, one area of increasing value for many industry sectors is the ability for a community to offer energy assistance. Rising energy costs are of significant concern for all industry types. Sorting through the growing menu of federal and state energy programs is a challenge for private industry. In light of this challenge, local economic development organizations are responding by coordinating regional industry consortiums around the energy issue. One example can be found in Central Pennsylvania, where the Altoona Blair County Development Corporation has formed the Blair County Energy Consortium. These type of efforts can yield many benefits to include bulk purchasing agreements, more cost effective alternative energy projects or simply a benefit of information sharing for individual members. GSP has been assisting both communities in developing these consortium and industry looking to locate in regions where they exist. This type of proactive activity will not only assist a region’s businesses’ bottom line, but also help distinguish one community over another – giving it a competitive advantage.

The State of Green Business

Published 02.11.10 Audience , Deep Thoughts , Economic Development , Event , Green & Sustainability , Media Type , News , Policy , Private-to-Goverment , Sustainable Business , Topic Area Leave a Comment
Tags: Business Creation, Chicago, economic development, economy, Green Business, green jobs, investment, jobs, policy, Sustainable Business

By Torrey Babson

I just returned from Chicago where I took part in Greenbiz’s State of Green Business Forum. I was struck by several things in addition to the shock that my United flight from snow-covered Chicago departed on time for snowpocolypsed Pittsburgh.

The level of participants at the conferences was certainly high; many directors, vice presidents, and even CEOs arrived eager to learn and take part in the discussion. This is important because it shows that major corporations are starting to take note of the environmental importance as well as fiscal benefits of taking part in the green economy. Major sponsors and panelists included those from Johnson Controls, IBM, and UPS, and others.

However, there were some major trends in the discussion that had to do with gaps. Several speakers lamented that there were no one-stop shops for pulling resources together for companies in terms of incentives for location and production. There are certainly many grants out there now for various types of green products and practices but companies and economic developers are not always aware of their existence or how they might be applied innovatively.

Continue reading ‘The State of Green Business’

Cloud-Based Business Impact – Are you Ready?

Published 01.27.10 Case Study , Communities , Economic Development , Green & Sustainability , Science & Technology Leave a Comment
Tags: analysis, Business Retention, Cloud Computing, Community, Data management, economic development, Economic Impact, Entrepreneur, Innovation, jobs, policy, Science and Technology, Small Business

By Stephen McKnight & Dr. Jerry Paytas

In the economic development system, agencies live and die by economic impact and it is about to get a lot tougher to measure this impact.

We were talking with a young entreprenuer recently (let’s call her Katie) living and working outside of New Orleans. Her small firm has grown to 12 employees in just over two-years and grossed over 1.1 million in sales last year. She works out of a small 150 square foot office on a side street providing strategic business solutions for more than 25 clients globally. Her “employees” work and reside in 4 different states. Katie’s customer data and business records are stored in Colorado with redudant storage in Georgia. She is not a member of the local Chamber. She has never taken incentives from the state or local agencies (she does not qualify for the programs). She chose her location for its overall quality of place, green space and amenities. There were no ribbon cuttings for her expansion, no politicians thumping chests for her success, and little economic impact for her immediate locale beyond her own buying power (which is increasing exponentially by the way). Katie is, we submit, a “Cloud-Based Business.” Let us explain how this is changing economic development.

GSP works with numerous economic development agencies and we know it is difficult for them to measure performance and impact. They are charged with attracting new investment for their respective regions or states and have very few tools and outcomes they can directly control in that cause. They spend their time attempting to influence the behavior of others, namely potential investors, businesses, workforce agencies, city councils and elected or appointed officials to do something that results in or creates the environment for new investment to occur. And while attempting to do this effectively, they have many masters such as politicians, board members, constituents and executive committees asking them to quantify their results, impact and relevance on a regular basis.

In the good old days – way back in the mid-2000’s – the vision of a job, a business, and its location was one commonly shared by most people. A business was located in a specific geography and building, defined by a political district. It created a certain number of jobs which influenced a spending chain, creating new wealth for the immediate community. Ribbons were cut for new businesses and annual reports were filled with its statistical economic impacts. Economic development programs, services and their impact were reflective of this vision.

Continue reading ‘Cloud-Based Business Impact – Are you Ready?’

Building Off Economic Anchors

Published 01.15.10 Case Study , Communities , Deep Thoughts , Economic Development , Green & Sustainability , Media Type , News , Policy , Strategy , Topic Area Leave a Comment
Tags: Business Creation, Cleveland, Community, Community Development, economic development, employment, green jobs, investment, jobs, university

By Torrey Babson

The Evergreen Cooperative in Cleveland is a groundbreaking initiative to utilize the proximity of major economic institutions to struggling neighborhoods in a market-based approach to urban renewable. While that is more than a mouthful to say it is even more difficult to accomplish. The first successful project has been the Evergreen Laundry which is catering to institutions such as hospitals in the University City area, and has lately been lauded in The Economist. The decision to launch this type of business was based on market analysis of the present and future opportunity. It is also important to note that most of the jobs associated do not requires years of training.

Perhaps one of the most unique aspects of this project is that while it has been foundation-created, workers can actually have an eventual stake in the company. In the video there is a remark that working at the laundry is not just a job, but a career. It seems that the Evergreen Cooperative initiatives operate right at the intersection between free-market capitalism and need-based intervention. I even suspect Adam Smith might smile upon this. While academics still debate the relevance and efficacy of classic liberal thought, the importance of personal ownership can not be understated. Hernando de Soto makes the case for the importance of such in his work “The Mystery of Capital.” While his economic theory focuses more around the developing world and the difficulties of government bureaucracy in combination with securing ownership rights, he also makes the point that without ownership, innovation and entrepreneurship are stifled.

I suspect that the Evergreen Cooperative’s model will be discussed, replicated, and adopted. It provides an avenue for workable, market-based community development that seeks to pair regional economic resources with employment needs. Finally, the ownership stakes it creates for employees will generate workers who are interested in the company’s success. This can lead to innovations, new business opportunities, and even spin-offs; thus creating more jobs.

There’s the saying that goes: “Give a man a fish and he will eat for a day; teach a man to fish and he will eat for a lifetime.” The Evergreen Cooperative will not only do the latter, it will help a man own the boat so he can eventually sit on the shore sipping margaritas while other people fish for him.

The Future of Pennsylvania’s Technology-Based Economic Development Strategy

Published 01.15.10 Economic Development , News , Research & Development , Science & Technology , Strategy Leave a Comment
Tags: budget, Innovation, policy, technology

Dear Friend,

I am writing this letter to my friends, former coworkers and acquaintances that I have had the pleasure of working with as part of Pennsylvania’s technology community. Please take a moment to consider these thoughts and possibly join me in a call to action and participate in a conversation on January 28th, 2010.

We enter a new decade that is certain to continue the intense pace of economic and social change. Think back ten years ago and what you were doing. My guess is that work, family and social life were much different than they are today. We change and the world changes around us. I have had the fortune of working within the technology community in Pennsylvania for more than a decade now and have seen a good share of economic transformation during that time.

What has impressed me the most has been the vision and leadership of many in our community. As I have traveled the country and worked with leaders in other states, I have come to realize the value of who we have in Pennsylvania and what we have accomplished. Leaders in our community have continually built upon the legacy of the Ben Franklin Technology Partners program and the Industrial Resources Centers to ensure that we have the economic tools to compete.

Continue reading ‘The Future of Pennsylvania’s Technology-Based Economic Development Strategy’

No Recession for Entrepreneurship?

Published 01.15.10 Economic Development , Policy , Research & Data , Science & Technology Leave a Comment
Tags: analysis, Business Creation, economic development, Innovation, policy, Science and Technology

By Jerry Paytas

A recent study by the Ewing Marion Kauffman Foundation found that the rate of business startups is very stable from year to year, varying between 3% to 6%.

Dane Stanler and Paul Kedrosky analyzed data from 1977 to 2005 and found that entrepreneurship is resilient to both economic booms and busts. This is good news and it runs counter to competing conventional wisdom. On the one side there are claims that economic booms prime the entrepreneurial pump because a dynamic environment is more likely to stimulate this kind of activity and it has been shown on the micro-level that entrepreneurs beget more entrepreneurs. Others have argued that entrepreneurship rises because tough times stimulate budding entrepreneurs to take the leap.

Based on their research Stanler and Kedrosky argue that conditions of growth or decline have no effect on business formation. This is good news for policymakers interested in a sustainable growth strategy that doesn’t suffer from cyclical downturns.

The bad news is that the authors did not find any evidence to support the effectiveness of any of the major tools to promote entrepreneurship such as entrepreneurial education programs or increased venture financing. A lot of this activity is funded and operated through state programs or metropolitan focused development groups, so it may be that data at the national level obscures the variation between places. However, Don Smith and Richard Florida found out long ago that simply creating venture funds is not sufficient for stimulating development, so their findings add some weight to this body of evidence.

This study raises more questions than it answers, but the authors do an excellent job of pointing out potential weaknesses in their analysis to reduce the chance that the casual reader will misinterpret their findings. They also examined demographic factors and suggested that the period they analyzed was one of relative demographic stability so it may explain the stability in entrepreneurial activity.

This study confirms that entrepreneurship can be a sustainable, resilient development strategy, but it should by no means be considered an easy one.

Economic Supercycles and The Next Wave

Published 01.13.10 Deep Thoughts , Economic Development , Higher Education , Policy Leave a Comment
Tags: analysis, economics, growth, Transformation

By Jerry Paytas

Bear with me while I geek out and try to make a point.

Supercycles are also called long waves, K-waves and Kondratiev waves after the Russian Economist Nikolai Kondratiev. Supercycles are the more accessible label for one of the more controversial but also intriguing theories of economic growth. Some of controversy arises because of very rigid or very expansive interpretations of the core idea.

Without getting into an economics lecture, lets just say that at the core, the idea is that within the dynamics of the economy and the various fluctuations of short term business cycles and even shorter term seasonal cycles, there are longer waves of growth and decline on the order of 40-60 years. Each wave is somewhat different in the causes and drivers of growth and decline, but they represent fundamental shifts in the economic order.

Economic Supercycles

Economists also argue over the dating and naming of the cycles. For most people, however, there is an intuitive sense to these cycles when they are presented. What is important for practitioners and students of economic development is that the places that can capture the value and catch the wave (so to speak) will enjoy the best and longest ride. Other places will be figuratively washed away. For example:

- The industrial revolution favored places rich in natural resources that could organize those resources into productive capacity.
- The IT revolution eroded the advantage of natural resources and enabled a greater dispersion of people and economic activity

Now we are in the midst of what may be called the Energy Wave. Efficient management of energy and access to clean, renewable and low-cost energy will provide regions with competitive advantages that will structure their prosperity for the next generation. Unlike some previous Supercycles, however, this one is not entirely a Zero-Sum game. This Energy Wave re-emphasizes the role of local production and consumption which provides more ways for more places to thrive economically.

Green Buildings, Green Jobs, Clean Energy, and Renewable Energy are a few of the ways in which regions are staking out their territory. As we do this, however, we have to keep in mind that we need to preserve assets and resources for future growth.

We cannot predict what the next wave may be, but their is a good chance that it will be water. According to the World Health Organization (WHO) one in three people on every continent are affected by scarcity of water. For a wake-up call, check out the World Health Organization’s Water Scarcity Fact File. So whatever we do, whether it is some new source of energy, or a refinement of one we already know, we need to consider not just what it will do for us today, but how will impact our ability to adapt to the next wave?

Do We Need the FTC for Social Media Transparency?

Published 01.13.10 Communities , Deep Thoughts , Marketing & Social Media , News Leave a Comment
Tags: Bayer, Community, Federal Trade Commission, FTC, guidelines, Pittsburgh Business Times, policy, social networking, twitter

By Tim Hindes

An article released yesterday by the Pittsburgh Business Times disclosed a number of local businesses who are adopting corporate policies relative to social media efforts and online activities. With the FTC including “new media” as part of their application of the FTCA as of December 1 in an ongoing effort to push corporate transparency coupled with Bayer Corporation’s Twitter news feed and social media policy launching shortly after the birth of 2010, the relevancy of this topic is, again, forced to the headlines.

In the article, Bryan Iams, head of strategic and external communications for Bayer, keeps their social media policy very simple, stating:

“It’s not as if there are brand new guides or instructions to employees, but this is another vehicle that, if they are representing the company, they need to be mindful of what proper behavior is.”

Simple enough. I wonder if this is corporate shtick or if the employees feel the same way. Without actually reading the 13 pages of guidelines, it’s hard to understand the severity of these new policies. But, with this quote, it appears that Bayer has established guidelines for social media and online use when representing the Bayer corporate entity. Seems fair. Kudos to any company or organization using social media and understanding enough about it to further monitor their online reputation and enforce policy to keep their name clean. Less headaches that way (pun intended).

Continue reading ‘Do We Need the FTC for Social Media Transparency?’

The Green Jobs Jungle: New Year, New Economy?

Published 01.07.10 Deep Thoughts , Economic Development , Green & Sustainability , Media Type , Policy , Topic Area , Uncategorized Leave a Comment
Tags: economic development, economics, employment, green jobs, Innovation, investment, jobs, manufacturing, policy

By Torrey Babson

As we enter 2010 many pundits are been sharpening their pencils to wager in on what the economy will look like. Russ Harding of the Mackinac Center and Steven Pearlstein of the Washington Post weigh in on this discussion from different perspectives but illumine a central point which I think is important. Both agree that the economy cannot depend and grow on the basis of more federal government cash infusions. Harding sees this as a reason for abandoning the green jobs focus because “Green energy drives up energy costs, which results in decreased productivity,” I believe it is much more nuanced.

While there are cases where green is more expensive there is also great opportunity in the marketplace for those firms and industries that choose to engage green and energy efficiency initiatives. GreenBiz.com’s Green Confidence Index (GCI) displays increasing consumer confidence and interest in the green marketplace. A concerted effort by industry to further this interest combined with increased government incentives to business and consumers (which could be phased out over time as market adoption happens), could lead to a sustained demand for green products and services that is not dependent upon continued government intervention. One of the main beneficiaries would be manufacturing. America is positioned to develop and deliver a host of energy-efficient products, and a whole supply chain is needed, whether it is manufacture of windmills or widgets.

If multinationals get a helping hand from the government, why not machine shops? Investing in innovation and opening up capital to help businesses invest in innovation can lead to an economy that is greener and more sustainable, while at the same time reinvigorating sectors of the economy that drive growth for people at multiple income brackets.

Social Media Means Deal Flow!!

Published 01.06.10 Deep Thoughts , Economic Development , Marketing & Social Media , Site Selection , Uncategorized Leave a Comment
Tags: alumni, analysis, Business Creation, communication, corporation, economic development, economics, family, incentives, infrastructure, International, jobs, Media, policy, Science and Technology, social networking

(Stephen M cKnight) The start of a new year (and decade this time around) is an ideal time to reflect and plan. Looking back, one of the more significant additions to our communication lexicon may just be ”Social Networking.” For the past several years, I have been teaching an economic development marketing course. And each year I call out the importance for economic developers to recognize potential investors (or customers) as not the “corporation” or “industry sector,” but rather as individuals (humans if you will) each motivated by both rational and irrational factors. They can choose locations based on factors such as friends, family and alumni connections just as easily as they may on cost, incentives, infrastructure resources or market statistics. But up until now, economic developers found it difficult to communicate or discuss the more discrete qualities of their location directly with the potential client. They only had the old dusty website or static print advertising to promote their ”Great Quality of Life” tag lines – only to then hope the message hits the target.

I think all economic developers would agree that their business is more personal, relationship driven, network reliant, and value focused than most. And social networking? Well, it is most often a self selecting and responsive medium, offering economic developers a more managed yet virtual community in which to market. If done correctly, cities, towns or regions can quickly develop a growing list of “friends” or ”members” that represent at the very least, good spokes-persons and in some cases, new investment.

Last year, the International Economic Development Council (IEDC) in partnership with the Development Counselors International, conducted a social media survey of 307 IEDC members. 63 percent indicated that they have been using social media tools for less than one year. More than half rated social media and networking as the most important aspect of their most immediate future marketing plans. So the message for the start of a new year (and decade) - “Don’t hold back on building your virtual social networking skills economic developers!” It is a tool that will evolve quickly in the coming months and, like this whole internet thing, I think it is here to stay.

Update: DARPA’s Red Balloon Challenge

Published 01.06.10 Higher Education , Marketing & Social Media , News , Research & Development , Science & Technology , Strategy 1 Comment
Tags: DARPA, MIT, Red Balloon Challenge, Riley Crane, Stephen Colbert, Viral

By Tim Hindes

As a follow up to our earlier post involving DARPA’s Red Balloon Challenge, Stephen Colbert interviewed MIT’s Riley Crane. Watch the video as he describes the MIT team’s viral platform for finding all 10 balloons in 8 hours and 52 minutes.

(H/T onedamnthing)

Economic Architecture

The Entrepreneurial City and Other Choices

Kansas City’s Power and Light District: Too much hope or too much hype?

Energy Savings Through A Cooperative Approach

The State of Green Business

Building Off Economic Anchors

The Future of Pennsylvania’s Technology-Based Economic Development Strategy

No Recession for Entrepreneurship?

Economic Supercycles and The Next Wave

The Green Jobs Jungle: New Year, New Economy?

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