Thursday, April 13, 2006

A Diversified Economic Development Strategy

Although a lot of important initiatives have been undertaken over the past decade to encourage technology-based economic development and entrepreneurship in the Pittsburgh Region, it’s probably safe to say that most leaders and citizens in the region still wouldn’t cite “technology development,” “business creation,” or “entrepreneurship” as one of the top priorities for the economic development of the region.

Why is that? There are a number of interrelated reasons:

  1. The Pittsburgh Region has been a victim of its own success. The entrepreneurs who were here 100 years ago – people like Carnegie, Westinghouse, Frick, Hunt, etc. – were so successful that they dramatically transformed the region’s culture. What started as an entrepreneurial region became a Big Company Town. Success became getting a job for life with one of the big corporations, not starting your own company.
  2. When the steel industry collapsed and many other long-time Fortune 500 companies reached the inevitable peak in their growth and began declining, the region’s citizens and leaders wanted strategies that would get the region back to the “good old days.” But that meant the good old days of being a Fortune 500 headquarters town, not the good old days of entrepreneurship that created those companies in the first place.
  3. Moreover, because of the severity of the problems in the 1980s, everyone wanted a high-impact, quick-fix solution. Elected officials, in particular, have wanted strategies that will pay off within their 2-year or 4-year election cycles, not the 5 or 10 years required for many startup firms to reach real success. Every year that passed without a big win increased the pressure to get a bigger win the next year. So economic development became a little like the choice between playing the lottery or putting your money in a 401(k). You keep trying to get the big win now, rather than investing something every year until compound earnings pay off down the road.
  4. In the early 1980s, when the steel industry collapsed, the region’s technology sector was nowhere near what it has become today. Both Carnegie Mellon and the University of Pittsburgh have evolved from good regional universities in the 1970s to major international centers of research today, and UPMC has evolved from a good urban hospital and medical school in the 1970s to one of the two largest academic medical centers in the country today. But the region's image of itself hasn't evolved with those changes -- we still see ourselves as a former big company town, not a current center of innovation.
  5. The transition from an entrepreneurial region to a big company town broke the cycle of risk-based finance. The community's wealth -- whether individual or institutional -- was not in the hands of people who had made their money through entrepreneurship or financing entrepreneurs, and so it became harder for entrepreneurs to find angel investors here than in regions where recently successful entrepreneurs were looking for new ventures in which to invest their money.
  6. Because of the massive loss of jobs during the 1980s, the focus of both public and private leadership has understandably been on creating jobs and lots of them. So a project that creates lots of jobs has received more attention that a small company that only employs a few people, even though that company might grow to create a lot of jobs a few years down the road. A 100-job call center makes a bigger headline in the newspaper than 20 small companies that each employ 5 people, even though the salaries of the latter 100 jobs might be double or triple the former. A firm moving into the region that creates 100 jobs in one fell swoop makes the front page of the paper, but a small firm that adds its 100th new job doesn't.
  7. Finally, there continues to be a myth that entrepreneurial firms only locate in Oakland, and technology businesses only locate in Pittsburgh or Allegheny County, not in the other 9 counties in the region, despite the fact that both large and small technology businesses are located in Armstrong, Beaver, Butler, Fayette, Greene, Indiana, Lawrence, Washington, and Westmoreland Counties.

It’s not an either/or proposition. Just like an investment portfolio should be diversified, the region’s economic development strategy needs multiple components. We should encourage businesses from other regions to locate here. We should assist our existing businesses to grow. And we should facilitate entrepreneurs to commercialize new technologies and services here. In the long run, the last of these three likely will have the biggest impact, just as it did at the beginning of the last century.

You can’t create jobs without companies, and most of the jobs that are here today were created by companies that started here. So creating companies should be as important a goal for the region as creating jobs.

And you can’t create companies without ideas, which is why maintaining and expanding the region’s research & development capacity is so important.

Ideas -> Companies -> Jobs. A simple equation for the region’s future.


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