Sunday, October 04, 2009

What's Next, Pittsburgh?

The G-20 Summit is over, and the world finally knows Pittsburgh is no longer the dirty, smoky steel town pictured in the history books. Now it’s time to stop talking about how we recovered from job losses 30 years ago and start talking about how we can accelerate job growth over the next 30 years.

The fact that we’ve lost fewer jobs than most regions during the recession doesn’t mean we’ll grow more jobs than other regions when the recovery begins. In the years following the end of the last recession, the Pittsburgh Region’s economy had the 4th worst job growth among the top 40 regions. In fact, the region never recovered all of the jobs it lost in 2002-2003 before the current recession hit.

As a result, the Pittsburgh Region has fewer jobs now than in 1999, whereas most major regions still have more, even after losing thousands of jobs this year.

The real lesson for our future doesn’t come from the past several decades, but from what happened here a century ago. Pittsburgh was once a place where entrepreneurs came to start companies, find investors, and produce products sold worldwide. Companies like Alcoa, Heinz, PPG, U.S. Steel, and Westinghouse didn’t move here because of economic development recruitment efforts. They were started here by entrepreneurs and they grew to become not only major employers themselves, but to spawn thousands of jobs in supply firms, too. The companies’ decisions about expansion and hiring were made in headquarters located in Pittsburgh, not in other cities.

There’s an important difference between attracting facilities of companies headequartered elsewhere and starting companies that will be headquartered here. The former tend to look better on the economic development scorecard in the short run, because they bring lots of jobs all at once and make bigger newspaper headlines. But the companies founded and headquartered here may be more loyal to their home region when the going gets tough.

For example, in 1996, one of the region’s biggest manufacturing firms, Mine Safety Appliances, experienced a cutback in orders for protective helmets (hard hats), and needed to close one of its plants because of overcapacity. The logical choice was the plant with the highest costs and lowest productivity. At the time, that was the Murrysville plant (just east of Pittsburgh). But thanks to CEO John Ryan's commitment to his and the company's hometown, he gave the Murrysville plant a chance to improve itself before the final decision was made. The workers themselves took on the challenge to improve productivity. Within six months, productivity had jumped from 75% to 86%. As a result of the improvement, Mine Safety closed a plant in Rhode Island rather than the Murrysville plant. The Murrysville plant continued to improve, and by 2000, it was named one of the Best Plants in North America by Industry Week magazine. It might never have had the chance if Mine Safety Appliances had been headquartered somewhere else.

A century ago, our economic assets were natural resources like rivers and minerals. Today, Pittsburgh’s biggest assets are technology and innovation. The transformation of Carnegie Mellon, Pitt, and UPMC over the past three decades into some of the leading centers for research in the world has given our region one of the key ingredients for successful economic development in the future.

But innovations don’t turn into jobs without a second ingredient: the entrepreneurs. Although we have some great entrepreneurs in the region today, we don’t have nearly enough modern-day Andrew Carnegies and George Westinghouses who take big risks and devote themselves to bringing an idea to life. Over time, Pittsburghers came to define success as working for someone else, rather than starting and growing a business. As a result, our region now has some of the lowest rates of entrepreneurship and new business formation in the country.

A third key ingredient is investment capital. No matter how good the idea or talented the entrepreneur, if a startup business can’t get the money it needs to grow, it will be forced to close or move elsewhere. Alcoa, for example, is here today because 120 years ago, inventor Charles Martin Hall couldn’t find capital in his home state of Ohio, but received the $20,000 in seed capital he needed from Alfred E. Hunt and a small group of investors in Pittsburgh. Similarly, many of our rapidly growing technology firms are here today because of the early stage investment they’ve received through individuals and organizations such as Blue Tree Allied Angels and Innovation Works.

Unfortunately, we don’t have nearly enough angel investors in our region to support the levels of entrepreneurship we need for the future. Here again, Pittsburgh is a victim of its own success. Most angel investors in other regions are successful entrepreneurs who have profited from the growth or sale of their companies and are looking to get involved in new entrepreneurial ventures. In contrast, many of the people in Pittsburgh today with the kinds of assets needed to make such investments have experience running large established companies, not entrepreneurial ventures. So organizations like Blue Tree, Innovation Works, and the new Pittsburgh Equity Partners provide mechanisms for individuals, corporations, and foundations in Pittsburgh to support angel investment even if they don’t have the skills or interest to become angel investors themselves. The challenge will be even harder in the year ahead if the state budget (whenever it finally is enacted) includes the 50% cuts in funding for entrepreneurship and technology development programs that have been proposed by the Governor and state legislators.

Although Pittsburghers can be justifiably proud of our high rankings on quality of life, we should be embarrassed that we rank near the bottom on lists of places to start a business. Attracting entrepreneurs and helping them find investors should be a central and visible piece of our region’s economic development strategy. It’s not enough to have our technology-based organizations working on it; it has to be a priority for all of our elected officials and civic leaders, as well as the average citizen.

There is no better time to focus on entrepreneurship than now – there are likely hundreds of potential entrepreneurs among those who’ve lost their jobs here over the past year, and thousands more across the country, as well as dozens of budding entrepreneurs each year at our colleges and universities. Let’s encourage them to start a business here as enthusiastically as we welcomed our G-20 visitors.

(A shorter version of this post was published as the Regional Insights column in the Sunday, October 4, 2009 Pittsburgh Post-Gazette.)


Anonymous Gary Rosensteel said...

Thanks for keeping this in front of the general populace of the Pittsburgh area!

I think the years of effort that you, me, and many others have put in is finally starting to penetrate the collective consciousness. Burghers are beginning to realize that fostering entrepreneurship is important to our future.

11:22 AM  

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