I’ve been doing a slow burn about this hatchet job.
Antoine van Agtmael and journalist Fred Bakker have a new book out entitled, “The Smartest Places on Earth: Why Rustbelts Are The Emerging Hotspots of Global Innovation.” This is a familiar theme to me because I was the editor of the 1992 Business Week cover story that discovered the phenomenon, entitled simply “Hot Spots.” At about the same time, Harvard’s Michael Porter coined the term “clusters” to describe areas that used ideas from universities or research institutes to create dynamic technology-based economic growth. These hot spots also were the theme of my 2011 book, The Next American Economy: Blueprint For a Real Recovery.” I also know van Agtmael from the days that he discovered “emerging markets.” He’s a smart guy and we’ve been talking about similar issues for a long time.
By now, we’ve established beyond a shadow of a doubt that better coordination among universities, large companies, smaller start-ups, chambers of commerce and economic development offices, and governments at the local and state level have created genuine wealth in places like San Diego, Austin, Pittsburgh and elsewhere. We have many Silicon Valleys, not just one. There are right ways, and wrong ways, to make these collaborations effective.
But the Wall Street Journal cannot accept the argument and has conducted an attempted assassination of the van Agtmael book in today’s newspaper. I append it at the end of this post because it is hidden behind a reg wall. The Journal has an ideological conviction that better coordination among local, state and regional players is un-Reagan-esque. They want the invisible hand of the marketplace to determine all economic outcomes. Efforts by humans to create a smarter kind of capitaliare doomed.
The Journal made its attack in a book review by Marc Levinson. Levinson, who seems to write about shipping, takes particular issue with the Agtmael/Bakker argument that Albany has created a kind of nanotechnology/semiconductor cluster, thanks in part to a grant from New York State to GlobalFoundries, to create a new factory. It was about $1.2 billion.
Levinson calculates it cost taxpayers $1 million per job created, and he suggests this is outrageous.
But the purpose of the investment was not just to create one chip plant. The goal is to attract many more companies, large and small, to create a concentration of activity in the Albany area. I have not been to visit so I cannot vouch that the cluster effort is proving successful. But Levinson’s attack is a cheap shot. It is intended to dismiss the Agtmael/Bakker book as rubbish. But it’s not. It is another effort to explain to how we can create wealth and jobs in America. Pity that the Journal had to resort to using a shipping writer to sabotage it.
Albany is now a hub of nanoscale science. But getting it off the ground was expensive: Every job created cost taxpayers nearly $1 million.
Back in the 1980s, with his state’s economy outpacing the nation’s and his eye on higher office, Gov. Michael Dukakis put forth a plan to spread the “Massachusetts Miracle” to the farthest corners of the commonwealth. The state would help fund “centers of excellence” in less affluent communities where universities and private companies would collaborate to create growth industries. New Bedford, an impoverished port once home to 40,000 textile workers, would emphasize marine science. Amherst, site of the University of Massachusetts’s main campus, would join with Pittsfield, where General Electric had big plants, to break ground in polymer science. “Our goal,” the Office of Economic Affairs declared, “is to establish each center and its surrounding geographic area as both the academic and economic world leader.” Three decades on, New Bedford’s unemployment rate is 3 percentage points above the state average. GE has largely departed Pittsfield, leaving an environmental mess behind. Gov. Dukakis’s centers of excellence are long gone.
The Massachusetts experience doesn’t figure in “The Smartest Places on Earth,” a book by economist Antoine van Agtmael and journalist Fred Bakker. The authors assert that close cooperation between government, academia and the private sector can turn “rustbelts” into “brainbelts,” generating innovations and helping troubled communities thrive. Their idea may have something to it. Their book, though—like much other writing on this subject—has so little analysis of what works and what doesn’t that it will be of limited help to anyone looking to revive a town that has seen better days.
The authors’ thesis is that innovation in the modern economy “requires a form of intensive collaboration that goes well beyond the kind of joint ventures and project partnerships we have seen in the past.” They claim that industrial centers of yesteryear are uniquely suited to promote this sort of collaboration: They have pools of businesses and workers with a deep understanding of particular industries, along with plenty of decaying buildings suitable for coffee shops, wine bars and cheap space for startup companies. The key, the authors write, is a “connector,” a person who can bring business leaders, universities and government together.
The bulk of the book recounts their visits to hothouse cities in the United States and Europe that illustrate the point. These vignettes are entertaining, but they are biased toward success stories, and in some cases material facts are omitted.
ENLARGE The Smartest Places on Earth
By Antoine van Agtmael and Fred Bakker
PublicAffairs, 308 pages, $25.99
Consider Akron, Ohio—or, as the authors refer to it, “Polymer Valley.” The longtime home of the U.S. tire industry, Akron fell upon hard times in the ’80s as the plants and corporate headquarters closed down. The authors credit Luis Proenza, then president of the University of Akron, for conceiving of the university as an engine of economic growth. The school changed its rules so professors could profit from commercializing their discoveries, and it encouraged them to work with former tire-company researchers in the Akron area. The state of Ohio chipped in grants to “create new technology-based products, companies, industries, and jobs.” Thanks to these efforts, according to the authors, firms making specialty plastics and polymer-based coatings flourished, establishing Akron as the hub of a fast-growing industry.
I have no reason to doubt that Akron has become a hub of innovation in polymers. But in their enthusiasm for Akron’s comeback story, the authors gloss over some facts. The population of Summit County, of which Akron is the seat, has barely changed in two decades. The statistics show no influx of brainy young innovators: The county has aged faster than the country as a whole since 2000, and its median age, 40.6 years, is three years above the U.S. average. While a small number of scientific and technical jobs have been added, total employment peaked nearly a decade ago, and wages remain below the national average. In short, after 15 years the economic benefit of becoming a “brainbelt” seems to be limited.
Or consider the area around Albany, N.Y., which has become a hub of nanoscale science. The State University of New York created a research center and business incubator, the Nanotech Complex, which attracted funding from around the world. Advanced manufacturing, including a semiconductor plant now run by GlobalFoundries, followed. “Jumpstarted by the collaboration between the state of New York, its university system, and IBM, the Hudson Tech Valley has become a thriving brainbelt,” the authors report. What they don’t make clear is that this required breathtaking amounts of public money. “The GlobalFoundries arrangement was one of the biggest taxpayer handouts ever offered to a private enterprise in the United States,” the Albany Times Union reported in 2011. The subsidy was initially pegged at $1.2 billion, or nearly $1 million per job created in the project’s first phase—enough to pay an average plant worker’s wages for more than a decade.
The authors, to their credit, suggest a number of ways to measure a brainbelt’s success—the number of related business spinoffs and startups, the licensing activity of universities, the inflows of venture capital and of foreign and out-of-state knowledge workers. But they provide no cost-benefit analysis and ignore the many public-private collaborations that have done little or nothing to create sustained local economic growth. The authors seem unworried by the possibility that some brainbelts may prove as ineffectual as Massachusetts’ centers of excellence. Rather blithely, with no evidence whatsoever, they assert that “there are far more examples of successful government participation in helping innovation than there are of misfires.” That confidence is not reassuring to anyone who wonders whether the $1.2 billion of public funds used to build a semiconductor plant was well spent.
Mr. Levinson’s “The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger” was recently published in a second edition.
