A Public System for Economic Development


How to create growth

Background

This was written in 2008. Until only a few decades ago economic development in the sense that it is viewed today did not exist. New developments happened by personal salesmanship and hard work. Everything changed after the federally funded “Manhattan project” showed what directed research could do. Then shortly thereafter when Silicon Valley was created in California as a result of mostly federally directed research for computational power for the military and space markets precedence was set. Now every city in the country would like to have a success like that in their town but how?

The focus over the past several decades has been on entrepreneurs and venture capital with emphases on the venture capital thinking that that was the key, to have seed, angel and traditional venture money available. That approach only partially works for the funds managers looking for a return, which they must, go where the perceived opportunities are which is not necessarily where the “local” community is. The local community is being defined here as where the fund is located.

But actually, if you think about it, the focus on money and trying to find the next hot deal is an exact backwards approach for a region or city. The key is not in making the venture money available for the money will come to the deals that are good. The key is creating a concentration of creative people and entrepreneurs.

The logic here is that no one knows what the next hot deal will be but the entrepreneur that has it. In fact, no one foresaw the benefit to any of the major development trends until after they happened. Further there is no way to know which entrepreneur will be successful and when they will first get an idea that’s good. Therefore for any locality, such as Cleveland, that wants to create growth the most cost efficient method to get real economic development would be to attract a large numbers of entrepreneurs. For if enough of them could be concentrated in a location their very numbers would almost guarantee a big hit at some point in time. This is a shotgun approach and when there is no hard target in sight a shotgun is better than a rifle.

To bring entrepreneurs to a location in the numbers required to guarantee a major hit would mean a number of thing are required and money is not one of them. Money is the most mobile of the requirements for success and will come to the ideas. What is needed is to focus on the innovation process and set up a process to facilitate all the steps. There areas can easily be identified and there are a place to live, a place to invent and a place to get help.

A place to live:

Create an economic empowerment zone by tearing down the worst ward in any inner city and build a village of middle class homes at say $150,000 each for the home. Say 500 to 1,000 homes so we would need maybe $250,000,000 for the project which can be done with bonds. These homes are loaned to anyone who submits a valid business idea to a review committee and they are allowed to live there free for 10 years. They get a reduction in the $150,000 home commitment that they make of $5,000 for every job created in the city. At the end of 10 years or sooner they get brought out. The home is then cleaned up and given to the next entrepreneur. There is a lot more to this but we’ll skip for brevity.

A place to invent:

Most inventors are hampered by a lack of resources. So the next step is to create a place they can go were all the tools for making and doing things exist. Let’s call it a craft center for lack of a better term. A place that has research facilities, a small machine shop a computer lab with appropriate software and all the other things that you might need to develop or build something. Ideally this craft center would be in the center of the entrepreneur’s village. That keeps travel time to a minimum which facilitates that innovation. Like in the previous discussion there is a lot that goes with this but those are only details. An educated guess would be $50,000,000 to build the center again well within the reach of local bonds.

A place to get help:

The third thing needed is knowledge and education; so how about a 2 year, a 4 year and a master’s degree in entrepreneurship for the curriculum in a special school or college within a university. In each case the requirement for graduation would be a business plan. What would be taught would be how to find markets how to manage and how to plan. A combination of a business and technology program so to speak. But since some of the areas where growth could be expected are very technical and science oriented some method of traditional education would be also be required. Combining an engineering degree with the entrepreneur’s school so all the non engineering courses required for a traditional engineering degree would be supplied by the entrepreneur’s courses.

Student loans could be given out with the entrepreneur either paying in cash, as normal, or given a credit of $5,000 for each job created. Again many details but we’ll skip those for now. Hard to estimate the costs but lets say a thousand students so it would probably be under $100,000,000 to put 1,000 students through 4 years. If those 1,000 students each created only 25 to 35 jobs, on average, that is 30,000 jobs per year after the first 4 years of the program.

Discussion:

Every location in the country, or the world for that matter would like to foster economic development within its geographic area of responsibility. Governments, States, Counties and Cities have all set up programs to try and find a way to promote economic growth, especially technology based growth with all kinds of “programs,” “grants” and “tax breaks.” Not many of these programs have worked as well as they were hoped to, and in my opinion there are several major reasons why promoting this kind of growth is very difficult. These are: one, true “New Ideas” typically don’t come from organizations they come from unknown inventors or entrepreneurs; two, these inventors (word used to mean both inventor and entrepreneur) normally don’t have “experience” or “money;” three, many of the traditional methods of help result in the inventors losing most of the value of what they came up with; four, because of politics with the use of “public money” most of these programs end up being very conservative; five, even with these programs there is no one source shop to go to.

Many, if not most, of the core issues for the inventor center on finding money for doing the designs, building prototypes and getting patent protection without losing their idea. Writing business plans and securing seed and/or start up money are also high on the list of needs as well. Getting through these hurtles is extremely hard for most inventors and many good ideas never get made because of this. So is there a way to help these inventors and promote technology based growth. I think there is.

At the State or better at the County level within a state a special kind of community could be established with public money that did the following.

A. Have a place to live for the entrepreneur and his/her family. This would consist of homes build for the city or county where they were located, preferably located near a major university. In the community would be created an environment that would facilitate inventing. That means as many of the daily needs of the community as possible would be located here. The logic being that you want the inventor to spend as little time as possible doing things that aren’t inventing.

B. In the center of this community would be a facility that would contain: a number of good computers and appropriate software (both business and technical), related support equipment like desks, phones, file cabinets, copiers and fax machines, a complete machine shop, a model making shop to include stereo lithography, and an electrical and electronics lab. This listing is only meant to show breath not every aspect. In essence this facility would have everything that an inventor would need to take his or her idea from concept to working model.

C. Have a small staff of support people such as technicians, attorneys, engineers, programmers, accountants, business people and machine operators knowledgeable in all aspects of making things. These people would be there for advice and could come from the nearby college and/or from retired business executives. Existing organizations like SCORE would fit in here perfectly. Obviously there would need to be some admin people as well to keep the place running.

D. Have the support of local business that had previously agreed to help or mentor those using the facility.

E. Have ongoing contacts with the seed and venture capital community and even hold investment conferences during the year where inventors could present their case or ideas to interested parties.

In other words this would be a comprehensive facility where and inventor could get access to design and make almost anything be it hardware or software in nature. And it would be a place that took no ownership in the idea its sole purpose would be to facilitate the inventor and give him or her a place to work.

To gain access to this facility an inventor would need to write up his/her idea and submit it to a review committee. The main purpose of the review would be to make sure the idea was within the scope of the facility to handle and that it had some economic potential if it could be produced. This would not have to be a formal presentation and its purpose would not be not to judge whether the idea would work or whether the inventor had the ability to make it. The secondary purpose would be to see if the inventor had the will to make things happen. Based on a positive review of the idea presented the inventor would be allowed to use the assets of the facility to design and build their idea. However this is not an open ended deal and part of the review would be to tell the inventor for how long they had the use of the facility. It is assumed some form of scheduling would be required and the facility should be open 24/7 to accommodate people that are holding jobs. They would have to do the work and the “state” would provide the tools to do so. The inventor would not be given any money only the means to design and build their idea. The technical and business staff would be there for guidance and support but not for doing the work. However if the inventor needed help in an area and wanted to pay for help it could be provided at minimal cost to them.

To an inventor buying all the equipment needed to build something would be cost prohibited and to try and find a range of local companies that would even do it for them would be very hard as most companies are looking for production work not one or a kind projects with unestablished companies or inventors where they may not get paid for what they did.

To the state buying all the equipment needed to establish a facility of this kind is not out of the question but finding new ideas are. Public employees are not risk takers and so most publicly funded programs end up being to make small improvements to existing ideas. The state here provides the expensive physical plant and since it is a conservative use of funds the public is not seeing their money being given away.

Since local and state money was part of the funds used to build the facility the inventor would agree to start their venture in the immediate locality if at all possible and within the state in any case. That is not too much to ask for the use of the facility and is really the only string attached.

Analysis:

Using Cleveland as an example since it has gone from the top to the bottom in less than 80 years we can see what works and what doesn’t work. Cleveland in the last half of the 19th century and the first part of the 20th century was a center of innovation. That innovation created growth. Cleveland in the ’00’s is for all practical purposes brain dead and is now ranked as the second poorest city in the country.

If nothing changes than nothing changes and in Cleveland if it doesn’t work the first second or third time just keep trying till it does. Sadly no matter how many times we study the problem and try it has never worked and so we are where we are. We’ve been trying the same formulas for several generations and so the people have figured out that the politicians and community leaders don’t have a clue so they voted with their feet, their gone. Even the PD figured that out in the editorials they have done over the past several years. Much good it did as no one is reading them but then maybe the flaw in the PD work is they assumed Clevelanders can actually read.

A solution that has worked well in other areas of the country, where similar but not as bad problems existed, was to combine all the affected communities into one large city. Again the PD has recommended that for Cleveland but I guess we would all rather disappear as a community rather than fix the problem. Too many politicians involved to actually make this possible. For think about it there would be a lot of mayors and council people out of a job if this was enacted. So since that will never happen here this entrepreneur’s village maybe something that could be done.

Recommendation:

The underlying logic here is to find a way to attract entrepreneurs here not the money as for the jobs it’s the people not the funds that is the key to turning Cleveland or any city around. So, using this White paper as background any of the local colleges could do an economic analysis of this idea to include pro forma economic projects of implementing these recommendations. The study would cost little and given the critical condition of the city what is there to loose?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.