Articles

11.20.08 AMI TH3 Program

Interesting e-mail from John Slanina:

Dear bloggers and buddies:

At a recent Rest Belt Bloggers event in Pittsburgh, and idea (described below) formed to show those residing both inside and outside of the mega-region what our neighborhoods look like, hoping pictures can create connectivity and community.

So Buffalo can see Butler, PA.
So Ashtabula can understand Akron, OH.
So Warren can connect to Wheeling, WV.

On this Tues Nov 11th, a bunch of bloggers across the Rust Belt will be posting their photos, videos, art, etc, to describe their town - their neighborhoods. I am helping to pass the word along.

Starting tomorrow, I will be away from electricity until after the 11th. If you are looking for more information, check out the Rust Belt Bloggers ning site. Hopefully as people post their pictures, we can create an interconnected web so you can jump from one city to the next.

Thanks for listening.

and an even BIGGER thanks if you can participate. all it takes is a few photos. We need a critical mass of participants.

Oh, and if you create a page, please reply to me with a link of the post. I would love to check them out upon returning to civilization.

defend always,

www.shoutyoungstown.com

- - -

http://www.keystoneedge.com/blogs/bloggers/ccloskey1106.aspx

A few weeks ago, I asked some of the out-of-town speakers at PodCamp Pittsburgh 3 what they thought of the Steel City. Every one of them said they found the place varied, cultured, pretty, and just all-around nice. And every one of them was surprised about it.

The reaction is a common one. First-time visitors to Pittsburgh seem always to come expecting sooty factory-style buildings, corrosion, and unemployed steel workers wandering the streets like zombies. They find instead an intriguing skyline, a robust economy, and a lively arts and culture scene.

In Pittsburgh and throughout western Pennsylvania we spend a lot of time fretting that we're still thought to be worn out, our best days behind us--and we spend a lot of time wondering how to change perceptions. The no-fail method seems to be bringing people here to see for themselves, but until we find a way to get everyone to come in for a big old slumber party, we need an alternative.

Here it is: We're having a Neighborhood Walk. Everyone is invited. And everyone's hosting too, if they want to.

The idea came up at PodCamp, in fact. We are looking for ways to use social media to help "promote the urban frontier"--most specifically, the post-industrial cities in the rust belt of the U.S. and Canada.

This isn't just about Pittsburgh. The same concerns apply to other rust belt cities: Johnstown, Youngstown, Erie, Cleveland, Buffalo. We want everyone to get involved.

The Neighborhood Walk will happen Nov. 11. On that day, everyone is encouraged to take a walk around their neighborhood and to photograph or video or draw or sculpt or somehow to document it, and then to share the media they create online.

The idea is to show others where you live--the good and the bad of it, and maybe your hopes and plans for its future.

Anyone can join in--including you, Gentle Reader. It's easy to start a blog for the occasion, or to post to Facebook or whatever site you use to stay in touch. Or you can send an email to the Rust Belt Bloggers site and we'll post it for you.

What will happen? Will this event have any effect?

I predict that there will be a small turnout the first time, and that each time we repeat there will be more and more awareness. Maybe like other events it will grow slowly and then suddenly blossom exponentially.

Maybe it will flop--if we don't follow through or if we all get distracted by other issues and concerns.

Or maybe it will gradually but steadily build until it becomes a part of the national/international consciousness. That's an exciting prospect indeed.

An interesting report by Scott Shane at Case Western Reserve University for the Fund for Our Economic Future and its regional strategy: Advance Northeast Ohio.

I posted a note in BFD here.

You can read through the paper below:

Richard Herman, who passed the paper along, commented at length in his e-mail, which I reproduce here:

This Summer, the Plain Dealer editorial board wrote a piece asking why the Fund for Our Economic Future was not involved in efforts to welcome immigrant talent, immigrant entrepreneurs and international capital into the region.
 
The Fund may now have its answer.  

A new report commissioned by the Fund has recently been released.
 
The author of the report, Dr. Scott Shane, is a professor at Case, and author of books, Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By (Yale University Press, 2008) and Fool's Gold: The Truth Behind Angel investing in America. (Oxford University Press, 2009).
 
Dr. Shane issued the recent report for the Fund for Our Economic Future:  "White Paper on Economic Growth Through Business Formation"  A link to the report can be found below.

In contrast to the "Global Detroit" project at the New Economy Initiative mega-fund  ( http://freep.com/article/20081007/COL06/810070362/0/COL08 ), to the Wooster EB-5 Foreign Investor Regional Center initiative ( http://www.the-daily-record.com/news/article/4453346  ) and to numerous similar projects around the country,
 
and in contrast to numerous national studies on  venture-backed immigrant founded companies, immigrant entrepreneurship and scientific innovation, and on the importance of tech development and research,
( a sampling:   http://www.kauffman.org/Details.aspx?id=1508  ; http://www.nvca.org/pdf/mericanMade_study.pdf ;

http://www.entrepreneurship.org/FeatureArticle/StrongActivity.html

 http://www.hbs.edu/research/pdf/09-003.pdf
http://www.nycfuture.org/images_pdfs/pdfs/IE-final.pdf )


and in contrast to the immigration policy initiative of the Great Lakes Chambers of Commerce Coalition,

and in contrast to other research commissioned by the Federal Reserve Bank of Cleveland for the Fund for Our Economic Future

http://www.clevelandfed.org/Research/Workpaper/2006/wp06-05.pdf
 
the "White Paper on Economic Growth Through Business Formation" concludes that the Fund for Our Economic Future should NOT allocate resources to the attraction of immigrant talent, to enhancing tech creation, or expanding the university research base in the region as a way to promote "attractive" entrepreneurial activity.
 
Excerpts follow:

I.)  Interventions to Attract Immigrants to the Region
Some observers have argued that interventions that increase the proportion of the
population that is foreign born will increase the amount of attractive entrepreneurial
activity in an area. Immigrants are believed to be carriers of an entrepreneurial spirit that
leads them to start new businesses, spurring our country's economic growth. The popular
wisdom is that immigrants have the work ethic, gumption, willingness to take risks, and a
host of other things that enable them to start businesses at a rate higher than the native
born population. Moreover, immigrants have social networks that allow them to source
raw materials and produce products in other countries where labor costs are lower.
58   As a result – the story goes – we can boost the amount of "attractive" start-up activity in an
area by bringing in more immigrants from other countries.

The data, however, do not suggest a strong relationship between the four measures of
attractive entrepreneurial activity in an MSA and the percentage of the population in the
MSA that was foreign born. No statistical relationship exists between the number of
angel group-backed companies or the number of "high impact" firms per capita and the
proportion of the population that immigrated to the United States. The correlation
between the per capita number of companies that receive external equity per capita and
the percentage of the population that immigrated to the United States is only weakly
correlated (0.13). However, the per capita number of venture capital backed companies
and the immigrant proportion of the population is correlated at 0.30.

The effect of immigrants on the number of companies that have received external equity
is negligible. A one percentage point increase in the immigrant population – 30,000
immigrants in NEO – would increase the number of companies less than six years old
with external equity by 12. Because these companies have sales of $435,000 and
employment of seven, the addition of 30,000 immigrants would add 84 jobs and $5.2
million in sales through this mechanism.

A more substantive effect would occur through the effect of greater immigration on the
number of venture capital-backed companies formed in the region every year (and
increase of 25 for every 30,000 immigrants). The addition of 30,000 immigrants would
add 8,540 jobs and $1.8 billion in sales at venture capital backed companies.
However, the Fund might not want to encourage the development of "attractive"
entrepreneurial activity through efforts to increase the amount of immigration to the
region for several reasons. First, at a ratio of 5,160 immigrants for each venture capital
firm that operates in a region, it is not clear that encouraging immigration to the region is
the most effective way to enhance venture capital-backed company formation. Even at a
cost of just $5,000 to attract and settle each immigrant, this approach is likely to cost far
more than a direct subsidy to convince a venture capital firm to set up operation in the
region. Second, even an effort to add only 5,160 immigrants, at a cost of $5,000 per
immigrant, is likely to be an intervention beyond the budget of the Fund.
25

II.)  Interventions to Enhance Technology Creation in the Region
Some observers argue that interventions to increase the amount of technology created will enhance the amount of "attractive" entrepreneurial activity that occurs in a region. Technological change creates opportunities for new companies. It allows people to do things that could not be done before or only could be done in a less efficient manner.
59

Moreover, it can be disruptive and undermine the competencies and capabilities of
existing companies, thereby creating advantages for new firms.

The data support the idea that increasing the amount of new patented technology in a
region will increase the amount of "attractive" entrepreneurial activity. Although the
number of patents per capita is not significantly related to the number of high impact
companies per capita, it is significantly related to the number of companies that receive
external equity investment per capita (0.19), the number of angel group-backed
companies per capita (0.15), and the number of venture capital firms per capita (0.53).

However, interventions to increase the amount of technology invented in the region are
not an effective use of the Fund's resources. In addition to the fact that the amount of
technology in the region is not associated with the number of "high impact" companies,
the size of the effect on angel group-backed companies and companies with external
equity is negligible. It will take an extra 1,000 patents to increase the number of angel
group backed companies by one. And each additional 100 patents per year will increase
the number of companies with an external equity investment by 4, generating 28 jobs and
$1.7 million in sales.

An additional 100 patents will increase the number of venture capital backed companies
by 9. While more substantial an effect than that on external equity or venture groupbacked
companies, the effect on venture capital backed firms is still low relative to the
costs. The R&D cost of creating each U.S. patent in 2004 was $1.7 million. Therefore,
the cost of generating the technology necessary to increase the number of patents in the
region by 100, and thereby increase the number of venture capital backed companies by
nine, would be $170 million. Stated differently, the amount of R&D necessary to add the
number of patents necessary to generate one venture capital backed company would be
$19 million. Clearly, there are less expensive ways to add an additional venture capital
backed company.
 
III.)  Interventions to Enhance the University Research Base of the Region
26
Some observers argue that interventions to enhance the amount of research conducted at area universities, such as through grants and programs to attract eminent researchers to the region, would increase the amount of "attractive" entrepreneurial activity in the region. The argument behind programs to encourage "attractive" entrepreneurial activity through support for academic research is threefold. First, academic research exposes a region to leading technological ideas, which helps to foster the development of new, high tech companies. Second, it supports the development efforts of small and start-up firms which tend to conduct a good portion of their R&D in conjunction with universities.
60
Third, it helps university researchers found companies that commercialize their research.
Because a strong relationship exists between the size of university research budgets and
the number of spin-off companies that they create,
61 increasing the amount of university
research funding is said to be a way to increase "attractive" entrepreneurial activity in a
region.

Research shows that that university spinoff companies tend to be very high performing
start-ups. According to the Association of University Technology Managers, from 1980
to 1999, American university spinoffs generated $33.5 billion in economic value added
and 280,000 jobs.

62 That is, the average American university spinoff generated approximately $10 million in economic value and 83 jobs.
63
Moreover, this economic activity tends to stay close to home. University spinoffs tend to
locate very close to the universities that spawn them, while other licensees of university
technologies are less geographically proximate. For instance, a study conducted by Lori
Pressman reports that, in the United States, 80 percent of all spinoffs operate in the same
state as the institution that they came from.
64
However, interventions to enhance the amount of university research may not be a cost
effective way to increase the amount of attractive entrepreneurial activity in a region.
First, several studies show that there is no relationship, across MSAs, between the
amount of university R&D and the number of technology jobs created over time.
65
Second, the number of university spinoffs created annually is quite small, and is
concentrated in a small number of industries, with data from the Association of
University Technology Managers showing an average of only 2.7 new businesses per
institution in 2005.

66 In fact, with 12 of the 418 U.S. university spinoff companies founded in this country region in 2006, this region, we are already at more than twice our proportional level.
67
Third, and most importantly, university spinoffs are very expensive to produce. Across
the universities and research hospitals in NEO, in 2006, it cost $46.3 million in research
funding to create a single university spinoff.
68 And this rate of spin-off company creation
per dollar of research was not below the national average.
 ________________________________________________
 

full report can be found at the following link:
 
 http://www.advancenortheastohio.org/files/White%20Paper%20on%20Economic%20Growth%20Through%20Business%20Formation2_0.pdf

----------------------------------------------

Not mentioned in Dr. Shane's report is the recent study commissioned by Venture Capital Association,  which found the following correlation between immigrant talent & "attractive" entrepreneurial activity:

Immigrant-Founded Public and Private Venture-Backed Companies

• Over the past 15 years, immigrants have started 25 percent of U.S. public companies that were venture-backed, a high percentage of the most innovative companies in America.
• The current market capitalization of publicly  traded immigrant-founded venture-backed companies in the United States exceeds $500 billion, adding significant value to the American economy. This is an example of the enormous wealth-creating abilities of immigrant entrepreneurs.
• Immigrant-founded venture-backed companies are concentrated in cutting edge sectors:  high-technology manufacturing; information technology (IT); and life sciences.
• As evidence of how important immigrant entrepreneurs have been to the U.S. technology base, the study found 40 percent of U.S. publicly traded venture-backed companies operating in high-technology manufacturing today were started by immigrants. Moreover, more than half of the employment generated by U.S. public venture-backed high-tech manufacturers has come from immigrant-founded companies.
• The largest U.S. venture-backed public companies started by immigrants include Intel, Solectron, Sanmina-SCI, Sun Microsystems, eBay, Yahoo!, and Google.
• The data show immigrants possess great entrepreneurial capacity, particularly in technical fields. The proportion of immigrant entrepreneurs among publicly traded venturebacked companies is particularly impressive when compared to the relatively small share of legal immigrants in the U.S. population. Today, legal immigrants encompass approximately 8.7 percent of the U.S. population and represented only 6.7 percent of the population in 1990.
• Most venture-backed companies started by immigrant entrepreneurs are technology-related companies that pay high salaries for white collar professional positions but employ fewer people than, for example, venture-backed retail stores such as The Home Depot or Starbucks.
http://www.nvca.org/pdf/mericanMade_study.pdfNDINGS



_______________________
 
Also not mentioned in Dr. Shane's report are Brookings and other studies that find strong correlation between immigrant population and a community's high-tech high-growth activity:
 
"Metropolitan areas with high concentrations of foreign-born residents
also rank high as technology centers.

Eight out of the top ten metropolitan areas with the highest percentage of foreign-born residents
were also among the nation's top 15 high-technology regions: Los Angeles, New York, San Francisco, San Diego,
Chicago, Houston, Boston, and Washington D.C."

 http://www.brookings.edu/es/urban/techtol.pdf
__________________
 
 
In his book, illusions of entrpreneurship, published jan 7, 2008, Dr. Shane dismisses as a "myth" the proposition that immigrants are big entrepreneurial performers in the U.S.  The new report for the Fund contains similar language.

This and similar contrarian views may sell books, and may be used to justify policy positions that are being questioned, but they are not supported by the weight of the nation's leading researchers and economists.
 
Building a tech-rich, prosperous, job-creating, globally-connected economy in Northeast Ohio will not happen without policies that prioritize the inclusion for immigrant talent, entrepreneurship and capital.
 
richard herman
cleveland
 

In Northeast Ohio, the technology organization NorTech has narrowed its strategic focus to alternative energy and liquid crystals. Read more.

This is an interesting development in light of the strategy that Nortech developed only about two years ago.

I love listening to Ned Hill. What makes him enjoyable is the verbal wave that he sometimes surfs. Take this quote from Jay Miller's article in Crain's:

"Edward W. Hill, interim dean of the Levin College, whose teaching specialty is economic development, called the plan, “the first time any (state) department of development in the country is being held accountable for something outside of deal flow.”

That would be news to economic developers in Colorado, Oregon, Indiana, Virginia, Massachusetts, Florida, Michigan, Pennsylvania, Hawaii, Arizona, New Mexico, Minnesota, Maine, Wisconsin and California.

Ohio now joins a growing crowd of states embracing innovation and metrics to measure progress. See the national Governors Association publication on state policies to promote clusters. (Statewide Innovation Indexes trace their history back to Massachusetts which launched an index in 1997.)

Ohio's innovation hub initiative follows similar statewide strategies in Pennsylvania (Keystone Innovation Zones), Michigan (Smart Zones) and Washington (Innovation Zones).

Ohio's got a good strategy, but we are late to the game. Execution represents the critical next step. It's important to focus on the heavy lifting ahead and maintaining focus.

Lee Fischer has done a good job barnstorming the state and raising awareness of the stakes. See for example this article from Mansfield or this article from Youngstown. We face some really tricky challenges.

Take the important area of workforce development. Ohio operates one of the most dysfunctional public workforce systems in the country. While the Ohio Skills Bank looks very promising, there is a lot of uncertainty surrounding the details.

In another important area, Ohio has an antiquated public sector. This "overhead" is costly and places persistent upward pressure on tax rates. Addressing this challenge with government innovation will be tough, as the McKernan-Shepherd Commission is learning in Indiana. The editors at the Chillicothe Gazette got it right:

The Strickland administration has given Ohio a workable, sustainable plan for its economic future. The turnaround comes in how well they live up to that plan's details.

Ask any MBA student. Adding capacity in a mature, slow growth market with over-capacity and falling prices does not make much sense.

Yet, the Cuyahoga County Commission is about to make a slipshod decision that will have major consequences for Cleveland and the County. The Scene magazine points out some of the challenges this week. Read more.

In the worst-case scenario (which has a relatively high probability) Cleveland will be left with two uncompetitive convention centers in about 10 years. These centers can create a huge cash drain.

In Pittsburgh’s case, public officials are scrambling to cover deficits of about $2 million a year (beyond the subsidies provided by gambling). Read more.

In Cuyahoga County, the decision to invest over $400 million is being very carefully stage-managed by the Greater Cleveland Partnership. Remarkably, the two County commissioners who are driving the political side of the equation have been compliant, even in the face of a federal investigation.

You would think that public officials in this environment would be particularly careful to document their decisions. That has not happened.

Remarkably, we have no business plan that explains how Cleveland will establish its market position. We have no market analysis to evaluate the impact of dramatically higher fuel costs (or a financial melt-down and serious recession) on the convention and meeting market.

We have no competitive analysis that clearly identifies how we will compete in this market. We have no customer segmentation analysis that even suggests a Medical Mart is an innovation that the market will accept. (Indeed, reporting by Jay Miller in Crain’s suggested some time ago that a similar effort in Birmingham was abandoned. See "Med mart plans not shaken by story of failed attempt ")

We have no sensitivity analysis to gauge the risks of the project if Cleveland fails to meet market share goals. We have no cash flow analysis to detail operating deficits. We have no management contract that we can examine to evaluate how the risks of this project will be allocated.

As the Scene article makes clear, we have no operational analysis, either. No one has explained how you get that many trucks on and off the site in a competitive amount of time. That’s a big deal. In conventions, costs are driven by logistics, the speed of moving stuff in and out.

The irony, of course, is that a bank requires a business plan for the smallest commercial loan. Yet, somehow, our County Commission feels sufficiently competent to make a $400 million decision without one. In the face of these significant questions, a reporter from the Scene Magazine cannot get a phone call returned.

Contrast Detroit: They are building their medical cluster more intelligently: through collaboration and alignment. This week they announced that Oakland County will support the development of a cluster of health care and life science companies and organizations, called Oakland Medical.

“I’m putting Mayo and Cleveland Clinic on notice that they’re going to have to look at Oakland County for competition from what we develop here,” said Oakland County Executive L. Brooks Patterson, who announced the initiative along with several health care leaders.

Read more.

As my brother points out in the Scene article:

“A public investment of this magnitude needs to be much more rigorous,” says Hunter Morrison. “There are too many unanswered questions. The taxpayers need to ask some hard questions of the county commissioners. And there are answers out there. We didn’t start studying this yesterday.”

Here's an article from the student newspaper at Youngstown State University.  The article outlines the impact of the new Higher Education strategic plan on Youngstown State and the opportunities to create a center of excellence on the YSU campus.

Youngstown State has the opportunity to create an exciting center that integrates creativity, open innovation and entrepreneurship. Read more.

These areas are entirely new in management education. It creates an opportunity for Youngstown State to develop an expertise that can be easily applied within the region. For some additional background, check out this article by Henry Chesbrough on open innovation and strategy.

Chesbrough points out:

Recently, however, firms and even whole industries, such as the software industry, are experimenting with novel business models based on harnessing collective creativity through open innovation. The apparent success of some of these experiments challenges prevailing views of strategy.

YSU could start focusing on this opportunity as their center of excellence.

Cleaning up the bailout mess will take hundreds of billions of dollars in a number of years.  Focusing only on repairing the balance sheets of irresponsible financial institutions means that the physical consequences of this mess will be left for the cities to sort out. Bill Callahan, our best source of clear eyed analysis on the foreclosure crisis, outlines an agenda for our political leadership to follow.

[W]e need to focus on what the banks must give in order to get the TARP [“troubled asset recovery program”] to take over their problems, and on what the TARPwill be able and required to do with the real-world assets (i.e. houses) at the heart of this transaction.

Jim Rokakis [the Cuyahoga County Treasurer] is fond of pointing out that nobody cared when financial blood was running in the streets of Cleveland, but now that blood is running in Wall Street it’s a national crisis. The deal that stops the bleeding on Wall Street and gives the banks a new start must do the same for the streets of Cleveland, Detroit, Cincinnati and Chicago.

You can read more of Bill's analysis here. You can download his memo at the base of this post. Here's his memo:

Dynamic mapping helps us understand the geographic dimensions of the fallout. You can start with the Wall Street Journal map here.

The Federal Reserve Bank of New York also publishes a dynamic map that helps pinpoint the geographic impact of the subprime meltdown. You can view the map here.

The blog Economic Populist also has a helpful set of maps.

HotPads.com provides a more useful  set of "heat maps" that enable you to identify the impact of the foreclosure crisis on Northeast Ohio. You can start with a broad search and then narrow your search to specific counties and zip codes. The hardest hit counties in NEOhio (showing darker red in the map below):

• Cuyahoga
• Lorain
• Stark
• Summit
• Trumbull

You can zoom in to see the pattern of individual property foreclosures. Now you start to see why Bill's points are so critical for the future of cities in Northeast Ohio.

If you're interested in getting more perspective on how this mess has come to be, take some time and read Kevin Phillips' Bad Money.

Over on  Brewed Fresh Daily, I posted a speculation last week that slower growth regions may actually have a competitive advantage in developing strategies in sustainability.

Up at the Lowe Foundation for a retreat.

One of my colleagues is from Sustainable Business Network Philadelphia.

An interesting insight from our discussions this morning: Older, slower growth industrial regions may have a competitive advantage in implementing new strategies and tools for sustainability. The reason: Sustainability strategies are much more difficult to implement in fast growing regions.

More on the opportunities on slower growth cities from Lev Gonick.

Last week, 400 civic leaders in West Michigan to explore action steps they can take to build prosperity in their economy. The West Michigan Policy Conference -- the first of its ckind in the region - is patterned after that statewide Macinac Policy Conference held every spring.

The frustration, though, comes from the Macinac conference's lack of follow-up..an inability to convert talk into action. That's what spurred the West Michigan to launch their own.

The press coverage gives you some of the sense of urgency spurring on the folks in West Michigan:

• West Michigan Regional Policy Conference: 'Start taking action'
• W. Michigan group seeks daring fixes

• Let's bridge Michigan's divide - for real this time

• Educators: Region will benefit if businesses cultivate internships in West Michigan

Of course, no annual meeting is likely to develop much momentum toward action. What's needed in many regions is am integrated civic process, not more events. The mere fact that the event sold out with 400 attendees is impressive enough, though.

The West Michigan event is not unlike the Brookings meeting held a couple of weeks ago in Columbus.

Materials on the Brookings/Greater Ohio summit held this week are available here. In case you missed it, here's the PD story by Tom Breckenridge.

Here are couple of other articles that covered the Summit:

• Report: Competition holding back growth of Ohio’s major citieshttp://thejournal.epluribusmedia.net/index.php/state-news/ohio-news/165-ohio-conference-on-restoring-prosperity-calls-for-major-makeovers-on-state-role
• Ohio Conference Calls for Major Makeovers

Is time right to start planning a NEOhio policy conference? Could a consortium of chambers step forward?