International Tax Competition

Worried about the tax base rivalry that goes on in your region? Maybe there is an even bigger version of this problem that all of us should be worried about--this is the competition among nations for tax base.

As economic integration brings all nations closer together, foreign economic opportunities are placed within everybody's reach. With that, business investment and location decisions become more sensitive to taxation issues. Revenue-hungry governments have decided to throw up some roadblocks to keep more for themselves. How? Rising tax competition has caused many governments to penalize residents and businesses from enjoying as much tax benefit from their investments abroad. With the lousy economy we have today, there is growing concern that we may resort to even more "defensive tax policy measures" that in the long run add greater inefficiency to the economy and discourage businesses from growing their markets internationally.

Tax policy issues are quite complex. Make no mistake about that. Inter-governmental tax competition here in the U.S. is a big deal and getting bigger as different levels of government duke it out for taxes. Nations are doing the exact same thing. This is an important issue for economic developers to look at because changing national tax policies have a impact on state and local taxes and the competitiveness of states and local areas for economic development.

Taxing capital is considered by most economic developers to be a bad idea. It prevents us from building the productive side of the economy. If we are not careful, we could see a new wave of tax policy changes by nations across the globe designed to help them hold onto their wealth and wealth-creating entities (people and businesses). These actions could prevent economic development from moving onto a globe level, which is where it needs to head in the future.

Want to know more? Click here to download a recent report by the Cato Institute on this subject.

The Public University's Role in Economic Development

Should public colleges and universities give attention to local economic development? Many already are and a number plan to give greater consideration to the issue in the future as the economy takes its toll on them and their surrounding community. An equally important question is what kind of attention should give to economic development?

Not everybody agrees that this is a good idea. A 2001 Business Week article says it's a bad idea, if it detracts from the ability of the college or university to achieve its basic research and education missions. Even though the article is 18 months old, it raises some interesting issues that state and local officials are wrestling with now. With most state budgets in shambles, many Governors and Legislatures are struggling with these questions.

Christopher Farrell, from Minnesota Public Radio, wrote in the Business Week article "They're (state and local government officials) still convinced wealth, income, and jobs will be increasingly driven by high tech, from communications equipment to genetic engineering to software. So they're intent on devising the right mix of public policies for the New Economy, especially when it comes to public research universities, the crown jewels of a knowledge economy." Farrell says that the universities have better things to do than become incubators for the local economy.

Using the University of Minnesota as an example, Farrell continues to say that economic development may sound like a great idea for universities, but the history of public institutions picking technological winners and losers is poor at best. He cites a 2001 paper, "The University of Minnesota as a Public Good," which concludes that the costs of state universities promoting commercially oriented research is high and the benefits low. Given the significant payback that universities receive for patents and other intellectual property, I would question this statement.

Is Farrell right?

I think he makes a good point that universities should give primary attention to doing an effective job at their research and teaching. This is what they are supposed to do. He is also right that university researchers are not the best people to judge a technology commercialization sweepstakes. This job is best done by private businesses who will exploit the commercial potential of the research, but it is my view that academic and business researchers should interact and work together where appropriate, especially where both perspectives and sets of skills are needed to solve complex problems.

Farrell draws the wrong conclusion though when we says that economic development is not the public university's role. To the contrary, these institutions are actors in a direct and indirect sense in the local economy. How they spend their budget impacts the local economy. The degrees they grant has a bearing on the local labor market and whether people are being trained to do the right things. The health of the local economy affects the surrounding community and what the community can offer the university. These are just a few reasons why colleges and universities--public and private alike--should be concerned about and involved in economic development.

I get the sense that the higher education-economic development connection is being re-thought by many people at this time. It is a complex issue, especially in a very tight financial and economic environment, and also in light of other issues, such as the bioscience conflict of interest issue that I wrote about earlier this week.

We need to be clear-headed about these issues. Bottomline: I believe that economic development is critically important to higher education, and higher education is vitally important to economic development. We need some new thinking on what the relationship should consist of. I will being sharing more thoughts on this issue shortly.

War with Iraq: Cost-Benefit Analysis

Economic developers should be interested in the costs and benefits of a possible war with Iraq. Undertaking such an assessment is quite complex. For starters, who is thinking about this issue and how are they thinking about it? This article provides some insights into this issue.

As an initial cut, I have identified several Internet links that provide information on the costs and benefits of a war with Iraq. Given the sharp debate about whether this war should take place, I have included views that reflect various perspectives of this issue.

Middle East Policy Council: A forum discussion on how to think about a cost-benefit analysis of a potential war.

No War Blog: Views of those against the war.

Cato Institute: Article published in the Washington Times reflecting the conservative view of the war.

Research perspective on why democracies don't go to war.

Market-based perspective of the war.

Economic perspective.

United Kingdom perspective.

Limitations of cost-benefit analysis.

Hidden cost of war.

U.S. Department of Defense Almanac: Where DOD spends its (our) money.

Center for Strategic and International Studies: Excellent white paper on the economics of the war.

Hudson Institute Center for Middle East Policy: Broader perspectives and reasoning on the war.

CNBC Series on the Price of War: Excellent!

Look for more on this issue in the future.

More Companies Move to Triple Bottomline Concept

Last year's corporate financial reporting mess has more and more companies looking at better ways to demonstrate their commitment to ethical practices. They believe this action may be warranted given investors' low confidence in the stock market and other problems. For one, they must meet the new SEC rules on financial reporting. If they don't, they could be fined and sent to jail, as we saw last year. But many feel that may not be enough. Some are beginning to examine the triple bottomline concept adopted by many companies during the past decade.

According to the American Enterprise Institute (AEI), more companies are moving toward a new corporate balance sheet that reflects not only financial profits, but also environmental performance and social impacts. AEI cites Dow Chemical, Ford, BP, Royal Dutch Shell and Monsanto as examples of companies headed in this direction. Will environmental and social performance override financial performance? That's doubtful, according to AEI. Here is the report. However, the triple bottomline concept is expected to grow in popularity as the number of socially conscious investors grows.

Some groups remain skeptical of corporations' motivation and commitment to sustainability. Click here to find out what the Ethical Corporation Magazine has to say.

Dow Jones has given attention to sustainability criteria since 1999 through its Sustainability Index, which assesses and ranks companies worldwide with respect to their performance in related to finance and economics, environmental sustainability and social performance. 500 companies in 59 industries in 33 countries are rated according to the Index. Who are some of the leaders? They include: Volkswagen (Germany), Webspace Banking (Australia), Dofasco (Canada), DuPont (U.S.), LaFarge (France), Royal Dutch Shell (Netherlands/UK), Unilever (Netherlands/UK), 3M (US), and Proctor and Gamble (US).

To learn more about the Dow Jones Sustainability Index, click here.

Does sustainability pay? For an answer read what the Forum for the Future in the UK has to say.

Connectivity: Possible Central Marketing Theme for Northeast Ohio?

With the creation of Team NEO, the hunt will begin for a central marketing theme for Northeast Ohio. I think we need to develop some focusing ideas that capture the business imagination. I would like to test a few ideas with you. The first one is "Connectivity!" Let's sell our "connectivity advantage."

Where did this crazy idea come from? It occurred to me after a series of early morning email exchanges with George Nemeth and Craig James, who are business leaders behind Cleveland's new Connection Series.

As I look out over the next 5 years, a central challenge for economic developers in every region nationally and globally will be to maintain, establish and strengthen their connections to existing and new wealth-creating networks across the globe. Many of the worst problems in society are those related to major "disconnects", especially disconnections that result in loss. People losing their jobs. Communities losing their core businesses and industries. Neighborhoods losing their residents. Look at the education/workforce disconnect. Transportation disconnects. The list goes on and on.

Economic places must be highly "connected places" to provide the "functionality" required by people and businesses to adapt to their rapidly changing world. The region has many connections now, and many new ones will be needed in the future. We cannot make the claim of being the best or most connected place in the world, but we definitely have many powerful connections that we can use to increase regional economic development.

How might we develop this idea for NE Ohio? For one, we should emphasize how Team NEO will improve connectivity within the region. Youngstown needs a better connection to Cleveland. Lake County needs a better connection to Akron. Manufacturing needs a better connection to bioscience. IT needs a better connection to finance and insurance. Small companies need to connect better with each other and to large companies. Old workers need to connect with young workers. Students need to connect better with mentors who can help them find their way to viable future careers.

Secondly, we should emphasize connectivity to external places, people, activities, organizations, markets, information and knowledge and other things. NE Ohio needs a more active business and economic connection to Pittsburgh, Indianapolis, Chicago, Munich, Hong Kong and many other places. Our industry clusters must connect to industry clusters nationally and internationally. Read my earlier Plain Dealer editorial about National and Global Partnerships. You can fetch it from my download page here.

A regional marketing effort focused on building the region's connections to these things could produce enormous pay-back on Team NEO's planned marketing budget. NEO offers strong and valuable connections to: 1) wealth-creating networks; 2) financial resources; 3) consumer and business markets; 4) technology; 5) industries and businesses; 6) people flows; 7) institutional resources (universities for one); and 8) knowledge and information; and many other things.

It has to be real! We need to prove that the region has a strong "connectivity advantage." That requires some solid research and effective communication. The perception we create must align with the reality.

It's a powerful theme that plays well locally (regionally) and nationally and internationally. How do we make the case? Talk about our connections, how local businesses and people have used existing ones and developed new ones to become successful.

The marketing message is this: "In this increasingly competitive and changing world, your business needs powerful working connections. NEO is the place where your business can find the "connection advantage" that it needs. If your business success depends upon connectivity, this is the place to be."

ED Futures Article Index Published

Looking for an easy way to find the articles you want to read at ED Futures? We just published an index listing all articles published in ED Futures through January 22, 2003.

We sent it out to many folks, but you can download a copy here off our regular business website. We will publish at least monthly index updates. Each will be posted on the download page at don-iannone.com.

Internet-Based Economic Development: How's Your Cyber Advantage?

A great deal happened in the Internet World in the last decade. I was reminded of this fact in reading The Economist's new series on the Internet. It is well worth your attention. You can find it here.

More has happened on the Internet than we can even measure or account for. Perhaps the only way to fathom its impact is to ask yourself how the Internet has impacted/changed your life. Maybe too much happened too fast. Most investors are still smarting from their stock losses in the past couple years. Ouch! Yet the Internet continues to advance beyond most people's wildest dreams.

Everyday a new type of Internet-based or assisted business and industry is born. Just ask Jim Cookinham, the Executive Director of the Northeast Ohio Software Association (NEOSA), which has 2,000 members and continues to grow. You may find NEOSA's IT workforce information to be enlightening. Check it out here.

The spirit moved me to write a pretty wild monograph called NortheastOhioEconomy.com three years ago, if you are interested. Ok, so I would change a few things if I wrote it today. You can download a copy here.

Rapidly, the Internet has become a highly integrated aspect of our everyday life. It's self-creating and organizing. In some ways, it seems to have developed a life of its own. That's kind of scary when you really think about it.

In an earlier ED Futures article, I talked about the geography of cyberspace. The Internet has helped all of us transcend physical geographic hurdles that once limited our activities. Now, we are "connected" to more than we even know. But I think that is true of life in general. The Internet has connected us to ideas, information, cultures and many other things the world over. Who would have ever "thunk" it? Certainly not my 7th grade geography teacher, who heralded the interstate highway as the be-all-and-end-all innovation in society. Tells you how old I am.

The Internet is rapidly changing how economic development takes place locally and globally. Very few communities, regions and states do not have a website so businesses and other information seekers can find them in cyberspace. With one click of my mouse, I can be seated in front of your organization's website and I can know a lot of your organization and area in just a few moments.

According to CoreNet, the association of business site selection professionals, business site location is relying to a much higher degree on Internet-based information resources. These professionals also tell us that economic development organizations (EDO's) should work harder at standardizing the data and information they provide via the Internet. Valid site selection studies require data that permits "apples to apples" comparisons. Given the multitude of "flavors" that places come in, that is no simple task. That's why the International Economic Development Council (IEDC) has initiated the Site Selection Data Standards Project to help communities, regions and states "harmonize" their data.

We urge all of our clients to get with the data standards program. We also urge them to go beyond standardization and find creative and effective ways to communicate about their unique strengths. Despite some marketing claims that places are becoming "commodities," I challenge that claim. It is true that many places possess similar characteristics from an economic development and business location perspective, but they have just as many differences.

The marketing of place, both on and off the Internet, is a complex undertaking. It's more than websites, brochures, Power Point presentations, trade show booths and fast-talking economic developers. We feel so strongly about this issue that we have embarked upon a new global study to understand the theories and concepts underlying economic development marketing. This is a challenge that Team NEO must tackle properly as it shapes its strategy to market Northeast Ohio to existing and new businesses. The Internet will be an important resource to Team NEO and the many other regional EDO's trying to lure new investment and jobs. We have put a small web directory of several of the ED groups serving NE Ohio up on our website. Click here to access the list.

I am encouraged by the creative ways that communities, regions and states are using the Web to support economic development. Look for more on this topic in the future.

How Your Greatest Strengths Can Become Your Weaknesses: Lessons From the Mountain States

Economic performance varies across U.S. regions. That is the message from Economy.com's most recent regional economic outlook, which was discussed in yesterday's ED Futures (January 22). A headline story in today's New York Times describes the variation among states within the same region. The story talks about four states in the Mountain region: Colorado, Utah, Montana and Wyoming, and their struggles to regain an economic foothold.

In recent years, both Utah and Colorado have seen significant population and job growth. Montana and Wyoming remain sparsely populated and developed places. Utah and Colorado have suffered considerable job losses due to cutbacks in the high tech sector and a drop-off of tourism--both were growth drivers in the 1990s in the two states. Looking with envy upon their neighboring states' economic success, Wyoming and Montana were planning to pump-up their economies with new ED strategies just as the recession began to take hold in early 2000. Both states wanted to build on their traditional economic strengths in tourism and natural resources while grabbing a piece of the technology sector, which grew briskly throughout the last decade. As they say, timing is everything.

Dr. Sung Won Sohn, chief economist for Wells Fargo Bank commented in the Times article, "Colorado currently has one of the weakest economies in the country after having one of the best only two years ago." Gov. Michael O. Leavitt of Utah described 2002 as "the toughest year for Utah's economy since 1954."

By 2000, Colorado, with 4.3 million people, had an all-time low unemployment rate of 2.8 percent. Utah, with 2.2 million people, had a near-record low jobless rate of 3.3 percent. But as the downturn swept across the country, the two states' greatest strengths were about to become their greatest weakness.

Since 2001, Colorado and Utah have lost nearly 60,000 jobs combined, most of them in the region's backbone industries of high tech, telecommunications and transportation. With far fewer people, Montana and Wyoming struggled without much success to diversify their economies. Now that failure has had its bright side, allowing them to escape severe misfortune

And so goes the story of how our greatest economic strengths can turn into our biggest challenges. In my estimation, all four states, as different as they are, need to work on building diversified economies with stronger global ties. Once again, we find an example were it pays to keep your growth options open and avoid becoming overly dependent on any particular industry sector for growth. The question is: "Can we accomplish these economic goals in the short run, given the high level of risk and uncertainty that exists across most of the world?"

Another important lesson illustrated by the Times article is that national and global events have a major impact on state and local economic performance. Economic developers will need to pay closer attention to these "big picture" events and how they shape current and future growth prospects.

What If We Go to War With Iraq?

Let me close this article by opening another "can of worms." How will state and local economies across the nation fare if we go to war with Iraq? For that matter, what effects will such a war have on local economies across the world? More and more, that is the key question we need to ask.

In my assessment, industry mix is a driving issue in understanding the path that change will cut through local economies. This suggests that economic development organizations need to sharpen their industry intelligence. On the surface, we are prone to look at the economic effects of the war issue in terms of increased defense spending and which industries and geographic areas directly benefit from that increased spending. That is a valid perspective, but it does not give us a full answer to the question.

There is another perspective, which relates to the psychological and socio-cultural impacts of a war or major military conflict. Very simply, war makes everybody nervous--even the hawks. Will a war with Iraq increase or decrease perceived risk and uncertainty in the world? At first glance, I think many people tend to see a potential war with Iraq as creating greater uncertainty and risk--at least in the short run. Some would argue on the other side that the war, if successful from the U.S. and its allies' standpoint, could reduce risk and uncertainty caused by terrorism in the long term. Let me ask you the question: "What do you think?"

Then, there is always the question of how much will a war with Iraq cost us? If you are a holistic thinking, you will answer this question with another question: "What type of costs are we talking about?" Moreover, what benefit is produced by these costs? These questions take us back to the late 1960s and early 1970s when everybody was talking about the "price of peace." Did we ever learn anything from that period in our history? I sincerely hope so.

My Take on Team NEO

Northeast Ohio's six largest economic development organizations (EDOs) have joined forces in a much more formal way to promote regional economic development in a more coordinated way. This is good news indeed.

Team NEO was announced today by officials from the six groups, representing the Youngstown, Canton, Cleveland, Akron and Lorain areas. These include: Greater Cleveland Growth Association, Greater Akron Chamber, Cleveland Tomorrow, Youngstown-Warren Regional Chamber, Stark Development Board and the Lorain County Chamber of Commerce.

The founding team members have agreed to put up $3.4 million for the first three years and have plans to raise another $3.5 million.
Marketing is likely to be the top priority for the new organization, hopefully generating new investment leads for all participating counties.

A national search for a President and CEO of Team NEO is in the works. It will be interesting to see which familiar faces try out for the part. One bit of advice: make sure this person has already done it before and that she/he is really a team player and builder. Our experience indicates this is a job that should pay in the $225,000-$250,000-range plus a bonus. Not cheap!

Click here to see what today's Akron Beacon Journal had to say about Team NEO. You can download the Greater Cleveland Growth Association's press release about Team NEO here.

What is our advice to Team NEO?

Getting everybody to agree to work together was step one. Step two was getting the existing organizations to refocus their attention and redirect a part of their existing budgets. Getting through the first two steps was not easy. It never is. Congratulations on taking these two big steps.

Now, what's next?

First, work at building trust and team-building among the various regional actors. Don't be afraid to "go to school" on how to collaborate. Too often we assume that people know how to work together and often they do not.

Large-scale economic development collaboration is a relatively new thing for NE Ohio. If you look closely how other successful regions have done it, you find that "actions speak louder than words." This is a case where everybody is from Missouri, so "show me!" Talk to the Pittsburgh Regional Alliance, Greater Phoenix Economic Council, Jacksonville Regional Chamber, Kansas City Area Development Council, St. Louis Regional Chamber and Growth Association, Indianapolis Regional Economic Development Partnership, and host of other similar organizations.

Second, develop a vision and action plan to guide efforts over the first 2 years. Don't get carried away with your first plan. Things will change once the organization is up and running. Develop the right vision, goals and a performance-based business model. You can fill in the details as you go. Adopt a business model that allows you to experiment.

Assume that the economy will continue to treat you like hell for at least the next 6 months and probably longer. Don't be afraid to try something bold and different. NE Ohio needs it.

My suggestion is to "get inside" the mind of the industries that you seek to retain or attract. One suggestion is to work with CAMP and other regional industry technology centers (Omeris, others)--these organizations really know how their respective sectors work, who the players are and they probably have some ideas on specific investment projects that could be tested for NE Ohio. Form an industry advisory council that provides you with an ongoing flow of this type of intelligence.

Third, decide that Team NEO will be a "proactive" project developer. What does that mean? It means that Team NEO should work with its regional and local partners to identify specific types of investment projects that could work. This means that Team NEO should present specific investment opportunities to regional, national and international companies. That is a different business strategy than the usual "reactive" approach where you respond to projects already identified by businesses.

Fourth, look for future growth from a wide array of industries. It's ok to have targets of opportunity, but remember that growth will come from a wide range of traditional and emerging industries. The world changes too fast to lock and load for too long on 4-5 investment favorites. It's also important to see manufacturing as a source of future opportunity. Again, talk to the folks at CAMP, Inc.

Fifth, give special attention to growth-oriented small to medium-sized businesses. Attract the middle market companies. They will need your help and can benefit from the region's existing industry expertise in a wide range of industries. Look for cross-investment opportunities involving international companies. The U.S. remains the most stable market in the world, even though the Chinese attracted more foreign direct investment (FDI) last year than the U.S. did.

See my friend Ed Morrison's blog. Click here to go to Ed's blog. He has posted some advice for Team NEO as well. Ed makes an important point about the difficulty of "branding" a complex and diverse region like NE Ohio. I agree with this point.

These are some starting ideas. More later.

Latest Regional Economic Outlook

Economic growth across the various U.S. regions varies considerably. This is true historically and remains true in view of the latest regional economic forecast.

While everyone is hoping and wishing--even praying--for more growth, most appear to be either flat or just treading water at this point. Economy.com's latest regional economic outlook finds 12 states are seeing some growth, 11 are still in recession and the remaining 27 are flat and treading water.

Several Northeastern states, including NY, NJ, CT and MA, appear to be feeling the most pain at the moment, but OH and MI are not doing much better in the Midwest. Even the states that have seen favorable economic growth across the last decade--UT, GA, WA, CO, AZ, NV, NC and SC are having their share of problems.

What are the key issues for regional economic growth? According to Economy.com, they are defense contracting, accelerated business investment, improving business travel, and rising commodity prices will generate some positive upside potential. But consumer spending, air transportation, auto manufacturing and weak state fiscal conditions will cause some areas to lag behind the broader economic recovery.

How much will defense spending help? That depends greatly upon the state you are talking about. Defense spending will continue to rise at a pace strong enough to have an impact on some regions. Missile defense, shipbuilding and aircraft production will be the primary beneficiaries, which will benefit all major defense contractors. This will make the current emerging pattern of regional growth more pronounced since the South and the West host most of the major defense contractors. The largest concentrations are in Fort Worth, Norfolk, central Florida, southern California, the Washington DC area, St. Louis, Baltimore and Philadelphia.

If you subscribe to Economy.com, you can find the latest regional forecast here.

What Are the Best Cities for Manufacturing?

The January issue of Expansion Management Magazine picks the 50 "hottest" cities (metro areas) for manufacturing? Which city heads the list? How about Jacksonville, Florida--a 3-time top favorite in the past five years. What makes Jacksonville the pick of the litter? Jerry Mallot, Executive V.P. of the Jacksonville Regional Chamber, says that its image, workforce and strategic market location. Most importantly, the area's image and reality are consistent.

Which cities round out the top ten:

1. Jacksonville, FL.
2. Phoenix, AZ
3. Atlanta, GA.
4. Greensboro/Winston-Salem, NC.
5. Colorado Springs, CO.
6. Kansas City, MO.-KS.
7. Nashville, TN.
8. Norfolk/Virginia Beach, VA.
9. Tampa/St. Pete/Clearwater, FL.
10. Tulsa, OK.

Sadly, my hometown Cleveland, did not make the top 50 list. In fact, none of the Ohio metros made the list. Some of Cleveland's out-of-state rivals did however: Indianapolis (#14); Pittsburgh (#19); Chicago (#22); Baltimore (#40); Louisville (#43); and Buffalo (#50).

How were the rankings undertaken? Expansion Management polled 75 top site selection consultants. What was the question? Which cities were doing the best job of presenting themselves as prime locations for growing manufacturing companies, and then delivered on that claim? Not exactly a scientific study, but nevertheless polls like this one can be effective in understanding "perceptions." You've heard the cliche before: "Perception may not be the same as reality, but people tend to rely on their perception in making decisions."

Since we are doing more work on the manufacturing front, you can expect to hear more from us on this issue.

Where can you get the article? Contact Bill King, Editor of Expansion Management Magazine at: 913-236-4229. You can find Expansion Management on the web here.

New Census Study Finds Hispanics Outnumber African-Americans

The U.S. Census Bureau released data yesterday that showed there are now 37 million Hispanics in the United States, which makes Hispanics the largest minority population in the U.S. The Hispanic population has grown by 4.7 percent since 2000, compared to a 2 percent population growth by African-Americans. Hispanics now account for 13 percent of the population, compared to the 12.7 percent share held by African-Americans. Asian-Americans account for about 4 percent of the U.S. population.

Get the details here.

Is the Relationship Between Academic Biomedical Researchers and Bioscience Companies Getting Too Cozy?

The 1990's saw a dramatic increase in collaboration between leading bioscience research universities and biotech companies both in the United States and abroad. The reason for this collaboration was clear: to attract new capital into biotech research and spur the growth of existing and new biotech companies and products. Yes, bioscience is clearly an industry of the future. A large number of metro areas and states are hanging their economic hats on the industry. According to a recent Brookings Institute study on biotech in the U.S., 51 metro areas lay claim to being "biotech meccas." The Brookings study finds, however, that 9 metros control 3/4 of the nation's largest biotech companies and they accounted for 3/4 of all new biotech startups in the past decade.

Could there be a fly in the ointment here somewhere? Ready for this? A recent article published by the Journal of the American Medical Association (JAMA) finds that approximately one-fourth of biomedical (bioscience and biotech) scientists have financial affiliations with industry, according to a new review of studies about academic conflicts of interest. The review, conducted by researchers at Yale University School of Medicine and published yesterday in JAMA, also concludes that two-thirds of academic institutions hold equity in start-up companies that sponsor research performed at those institutions, and that research financed by industry is more likely to draw commercially favorable conclusions. Not good news for metro areas like Boston, New York, Raleigh-Durham, Baltimore/Washington D.C., San Diego, St. Louis, Cleveland and a raft of others that are counting on the biosciences to propel their future economies.

"Financial relationships are pervasive and problematic," wrote Justin E. Bekelman, Yan Li, and Cary P. Gross, who are researchers in the medicine and biostatistics departments at Yale. They reviewed the medical literature, looking for studies that analyzed financial relationships between academe and industry.

The researchers found that not only did industrial sponsorship affect the outcome of the studies, but that it also tended to affect the design of clinical trials. For instance, industrially sponsored studies were more likely to compare new pharmaceuticals to placebos than to currently used medicines, a technique that increases the likelihood of a positive outcome.

Mr. Krimsky, one of the researchers, said that bias due to industrial funds is more extensive than is generally believed. The Yale researchers found that not only did studies financed by the tobacco industry report pro-industry results, but that studies on pharmaceuticals were affected by their source of funds, as well.

What's the answer? The researchers propose that to manage conflicts of interest, universal policies should be adopted by academic institutions and by journals. They recommend the creation of a public database that would include the results of all clinical trials as well as disclose investigators' financial ties to industry.

But Mr. Krimsky thinks that disclosure may not be enough: "We would not permit a judge, for example, to have equity in a for-profit prison, even if the judge disclosed it. And yet it seems to be that it's OK for scientists to have equity in companies that fund their research as long as they disclose it."

Want to know more? Click here to go to the JAMA website. As they say, maybe you don't want to go there.

Several questions come to mind in taking all this in. First, are academic researchers "cooking" their results to support commercialization of products that are potentially harmful to the public? Second, will this study create roadblocks in building future university-industry partnerships in the biosciences? Third, are the study results valid?

This is an issue that we need more information about, and it is one that local and state economic developers need to pay some attention to. We will continue to monitor the issue.

Ohio Growth Outlook

According to a recent forecast report released by the Ohio Department of Jobs and Family Services, Ohio will create 660,000 new jobs during the next decade (2000-2010). This represents a modest 11 percent growth over the decade. That amounts to only 66,000 new jobs per year.

Which industries will create the most new jobs? No great surprises here. The service-producing side of the economy will account for 646,000 of all new jobs, or 97 percent of the total. Manufacturing is expected to tread water in the next decade but not grow appreciably in Ohio over the next decade. We should not give up on our manufacturing base. In fact, we need a very aggressive program to ensure that Ohio creates the "next-generation" manufacturing industries in the coming decade. These manufacturers will produce artificial organs, biochips and sensors, smart materials, fuel cells and a lots of new products and services.

According to the state report, Ohio's top ten job creation leaders in the next decade will be:

1. Personnel supply services (SIC 736): 82,000.
2. Computer and data processing services (SIC 737): 39,900.
3. Medical offices and clinics (SIC 801): 21,200.
4. Misc. business services (SIC 738): 15,000.
5. Home health care services (SIC 808): 14,900.
6. Misc. shopping stores (SIC 594): 14,400.
7. Residential care (SIC 836): 13,300.
8. Misc. amusement and recreation (SIC 799): 12,700.
9. Child day care services (SIC 835): 9,800.
10. Air transportation, scheduled (SIC 451): 9,700.

A quick look at this list says to me that: 1) these are pretty much the same industries that will lead national job growth in the next ten years; 2) many of these industries will not produce very many high-quality jobs; and 3) growth in many of these industries will occur without much encouragement from anybody.

What are my chief economic development concerns for the state? There are seven that come to mind:

1. What happens to manufacturing, and whether we can spark growth and innovation in this sector.

2. Whether Ohio can take some big steps in creating a healthy and balanced knowledge economy.

3. How we are going to raise the educational attainment levels of the state and its component regions.

4. Whether Ohio's leading companies will succeed in making significant global market share gains in their industries.

5. Whether we can increase our share of high-quality knowledge jobs.

6. Whether we can form stronger national and international ties with the new wealth-creating networks that are taking shape.

7. Whether we can move to a more productive (high-performance) system of government and nonprofit services across that state that costs us less and produces more value for everyone.

My view is that forecasts are not destiny. The state's most recent forecast could reinforce our current low expectations about what the Ohio economy is capable in the future. We need a shift in our expectations. We need to move to new "business models" of economic development that catapult our growth. The real gains we seek in the next decade should be gains in quality, not just quantity. What we create is probably more important than how much we create.

Get the Ohio forecast report here.

What Makes a Good Business Incubator?

According to the National Business Incubation Association (NBIA), the adoption of the following principles will increase the success of your business incubator:

First, two core principles characterize effective business incubation:

1. The incubator aspires to have a positive impact on its community's economic health by maximizing the success of emerging companies.

2. The incubator itself is a dynamic model of a sustainable, efficient business operation.

NBIA says that incubator managers and their boards should:

1. Commit to the two core principles of business incubation.

2. Obtain consensus on a mission that defines its role in the community and develop a strategic plan containing quantifiable objectives to achieve the program mission.

3. Structure for financial sustainability by developing and implementing a realistic business plan.

4. Recruit and appropriately compensate management capable of achieving the mission of the incubator and having the ability to help companies grow.

5. Build an effective board of directors committed to the incubator's mission and to maximizing management's role in developing successful companies.

6. Prioritize management time to place the greatest emphasis on client assistance, including proactive advising and guidance that results in company success and wealth creation.

7. Develop an incubator facility, resources, methods and tools that contribute to the effective delivery of business assistance to client firms and that address the developmental needs of each company.

8. Seek to integrate the incubator program and activities into the fabric of the community and its broader economic development goals and strategies.

9. Develop stakeholder support, including a resource network, that helps the incubation program's client companies and supports the incubator's mission and operations.

10. Maintain a management information system and collect statistics and other information necessary for ongoing program evaluation, thus improving a program’s effectiveness and allowing it to evolve with the needs of the clients.

We would add three additional principles for your consideration:

1. Design business incubation programs with industry life cycles in mind. At all times be aware of an industry's stage of development. Industry context is essential to successful business starts. The role of entrepreneurship varies across industries, and it can vary over time in any given industry. Right now for example, entrepreneurial companies are a major source of "new products" in many emerging technology industries. Once ready for market, many of these new starts are quickly acquired by larger companies hungry for new products. The entrepreneur gets rich if he/she does it right, and the larger acquiring company gets a valuable new product and saves a ton of money on new product development.

2. Give greater attention to the discovery, development and recruitment of "entrepreneurs." It's the people behind the business that matters most. Understand what makes them tick. Personality, life values and goals, how they work with other people, industry and educational background and related issues are critical factors to understand in shaping your future "entrepreneurial talent retention and recruitment efforts."

3. Avoid doing what the "marketplace" can and should do for itself. Your first strategy should be to help the market to respond to an issue. Build nonprofit and governmental agency capacity only if the first strategy does not work.

Despite a Stinky Economy, Companies Continue Investing in People

The economy is down. Fewer jobs are available. Productivity is up. Companies have less money to work with, but they continue to invest in their people. This is good news. These are the basic messages from a recent survey by the Gallup Organization, which you can access here.

The article presents the results of a December 2002 survey of Americans. The survey's chief findings are:

1. Nine in ten employers encourage employees to upgrade their skills.

2. Three in four employees actually believe that their job challenges them to use their skills.

3. Three in four employers offer on-the-job training opportunities.

4. Two-thirds of employees say their employer provides them with opportunities outside the workplace to increase their education and strengthen their work skills.

5. Three-fifths of employees say their employers provide tangible benefits or incentives (reimbursement, promotions, etc.) for them to acquire additional education and training.

6. Over half of those interviewed said they actually take advantage of the learning and training opportunities available to them. Why don't more take advantage of these learning opportunities.

7. What could motivate more employees to take advantage of these opportunities? First, fewer demands on their time by work and family. Second, learning and training opportunities offered in more flexible and convenient ways.

The results of this recent Gallup poll are encouraging indeed, especially in light of the scarce resources available to businesses. Our work with several colleges across the country is consistent with the Gallup poll results. Employers see the "down economy" as a time to increase workforce skills.

What's Happening with Foreign Direct Investment?

One word tells the story: China. The Financial Times of London released a report on January 19, 2003 saying that China attracted nearly $53 billion in FDI in 2002. Want to read more? Link to the story here. The story suggests that this FDI growth trend is likely to continue in China this year.

How does 2003 look from a global foreign direct investment standpoint? For most countries, this year does not promise to be a great year for FDI in most of the world. Hopefully it will be an improved year over the past two years. Final statistics for 2002 are have not been released, but the general view is that FDI remained down, but perhaps not as bad as 2001. Which nations command the largest share of FDI inflows and outflows? During the 1991-2000 period, the U.S. had a 31 percent share of total world FDI inflows and it had a 22 percent share of the world's total FDI outflows. Germany and the U.K. each had a 15 percent share of FDI inflows. The U.K. had an 18 percent share of total FDI outflows.These numbers indicate that the U.S. market was most competitive for FDI inflows during the past decade. Source: OECD.

During the 1991-2000 period, the U.S. received a commanding 45 percent share of the world's total manufacturing FDI inflows and it accounted for a 21 percent share of global manufacturing FDI outflows.

First, what are the major factors at this point in time having the greatest influence on FDI trends. We turned to a recent study by A.T. Kearney for insight. The top five factors in order of importance are: 1) the recovery of the U.S. economy; 2) Middle East conflicts (very close to being #1); 3) inability of Japan to pull-out of its recession; 4) global and regional trade initiatives and 5) volatility of energy prices (ties to #2). Obviously, the prospect of a war with Iraqi is a severe damper to FDI at this time.

Which country has the most attractive location for FDI at this time? For the first time in history, China is considered the most attractive national market for foreign direct investment. The FDI numbers reported in the recent Financial Times article suggest this assertion is true--at least for last year and maybe for this year. Historically, the U.S. has held the top position. Behind China and the U.S in order are: the United Kingdom; Germany; France; Italy; Spain; Canada; Mexico; and Australia.

Look for more on this issue in the future.

Israeli Bioscience Entrepreneurs Visit Greater Cleveland

Israeli entrepreneurs are looking for stronger ties to U.S. companies, universities and funding sources. The message is this: we can grow stronger by working together. This is the same message I have been promoting to all who will listen in the economic development community. Form national and global partnerships. Build the organizational capacity to undertake economic development on a global scale. Economic development organizations worldwide work together. United we stand, divided we fall.

A group of about 20 Israeli bioscience firms will be meeting with Ohio companies and economic development officials this week in Greater Cleveland. The aim for both sides is to identify new opportunities to work together in the future.

This is a good move for Greater Cleveland and a feather in the cap of the Ohio-Israel Chamber of Commerce, Greater Cleveland Growth Association, Cleveland World Trade Association, Beachwood Chamber of Commerce and other supporting economic development groups. Congratulations!

I suspect that everyone will learn a great deal from the visit. Hopefully even some deals will be signed along with all the valuable learning that takes place. Greater Cleveland has strong ties to Israel. The history, culture and values of the country and its people are familiar. That's essential for successful international business cooperation.

Which Israeli companies will be attending? Here is a partial list

Selected Israeli Participants

-Biosensor Systems Design
-BioTerm Ltd
-BIRD Foundation
-Compugen
-Elcam Medical
-Glycominds Ltd.
-Keryx Biopharmaceuticals
-LifeWave Ltd.
-Medogar
-Muscle Tech
-Nexense Inc. (formerly Girad Systems Ltd.)
-Ninbar
-Predix Pharmaceuticals
-Shekel Electronic Scales
-Solubest Ltd.
-Vascular Biogenics Ltd.

Who is having success in attracting Israeli businesses? Just talk to the folks in Boston, Baltimore and Atlanta. Atlanta alone has attracted over 70 high tech Israeli companies to its region.

Where's the money coming from? Several corners, but check out what the BIRD Foundation is doing. This is worthy of your attention. Click here to visit BIRD's website.

I have been thinking for sometime that "sister-city ties" could be used to promote innovative new business and economic relationships. Many cities, counties and states have found that to be the case. Connections with Israeli technology and entrepreneurs are very hot now, especially in light of the turbulent state of world affairs. So, what sister-city relationships exist between Israel and the U.S. Here a list of those we are aware of.

Israeli City/U.S. City
-Afula-Gilboa Region/New Haven, Connecticut
-Akko/Deerfield Beach, Florida
-Arad, Central/Burlington, Vermont
-Ashkelon, Central/Portland, Oregon
-Beer Sheva, Central/Seattle, Washington
-Eilat/Los Angeles, California
-Givatayim/Chattanooga, Tennessee
-Haifa/San Francisco, California
-Hatzor/Reno, Nevada
-Herzliyya/San Bernardino, California
-Herzliyya/Hollywood, Florida
-Herzliyya/Columbus, Ohio
-Holon/Dayton, Ohio
-Jerusalem/New York, New York
-Karmiel, Northern/Denver, Colorado
-Kirat Gat/Buffalo, New York
-Kiryat Ekron/Akron, Ohio
-Kiryat Motzkin/Tacoma, Washington
-Petach-Tikva/Chicago, Illinois
-Ra'nana/Atlanta, Georgia
-Ramat Gan/Miami Beach, Florida
-Ramat-Hasharon/Miami, Florida
-Ramla, Central/Kansas City, Missouri
-Rehovot/Rochester, New York
-Rishon Le Zion/Capitol Heights, MD, Maryland
-Tel Aviv/Philadelphia, Pennsylvania
-Tel Mond/Sarasota, Florida
-Tiberias/Tulsa, Oklahoma
-Tiberias/Village of Great Neck, New York
-Yavne/Sunrise, Florida
-Yehud/Oklahoma City, Oklahoma

What are you seeing in your area? We would like to hear your thoughts.

The Optics and Photonics Global Cluster Network

Good ideas spread like wild fires, or maybe at the speed of light if you talk to the people who run the The International Society for Optical Engineering (ISOE). The good idea in this case is the development of optics and photonic industry clusters across the world. What is an optics and photonic cluster? According to ISOE, optics and photonics clusters are concentrations of optics-related firms and universities that maintain strong research and workforce ties, create quality jobs, share common economic needs, and work with government and stakeholders to strengthen the industry.

On a worldwide basis, ISOE estimates that the number of photonics and optics industry clusters is increasing rapidly. It's hot technology. Industry analysts predict that the photonics market will reach $230 billion (U.S. dollars) by 2003 and it may approach $470 billion by 2013. ISOE believes that the photonics sector could become the world's next trillion-dollar sector.

As a fledgling industry, optics and photonic expertise exists in many places across the globe. No one geographic area dominates the field. Yes, Southern Arizona (Tucson area) has a powerful presence in the field, but so do Hamburg and Muenchen, Germany, Rochester, NY, and a host of regions in the U.K. and other countries. Photonics clusters have formed in Canada, Europe, Japan, China, India, and Australia. In the United States, clusters have formed recently in more than a dozen states. There are at least 21 photonics clusters worldwide, with some new ones on the way.

Remember the line "Plastics" in the movie, The Graduate? If your area is a leader in the biomedical and bioscience fields, maybe the new buzz word for your area is "Biophotonics." According to the Biophotonics International Journal, photonics has a strong track record of success in solving various clinical and research problems in diverse applications through products and techniques like spectroscopy, lasers, microscopy, imaging and fiber optics. Cleveland, are you listening?

Would you like to know more? Stupid question. Just click here.

Chinese Economic Outlook

The Chinese economy is poised for growth. It has been for sometime. While the world economy is hurting, the Chinese are ready to turn up the heat in 2003. That's good news for U.S. corporations with a stake in China, but not so good news for U.S. jobs, according to a recent report released by Economy.com. Here are a few exerts from the report.

"China’s development as an export-oriented global manufacturing hub strongly benefits corporations that are taking advantage of the lower cost structure. Moreover, increased margins benefit these companies’ investors, and lower prices are a boon to consumers. However, the gains are coming at the expense of U.S. manufacturing jobs at both ends of the value-added chain."

"The U.S. trade deficit with China, which will grow in coming years, is cause for concern. Politically, a mounting trade deficit with China may very well spark a domestic backlash and concomitant protectionist sentiments. This has broad implications for U.S. economic policy as did the trade deficit with Japan during the 1980s. China’s rapid march up the export value-added chain, which has already resulted in the capture of significant market share in downstream electronics, will also inevitably reach mainstays of U.S. high-tech manufacturing such as semiconductors and telecom equipment."

Chinese industries, like textiles, clothing and other light manufactured goods, have historically made their mark in overseas markets. As a new and increasingly powerful generation of higher technology industries move into place in China, we can expect greater market competition in the future in areas like scientific equipment, office machines and motor vehicles. Remember the mid to late 1970s and how the Japanese gained a huge foothold in the U.S. market? Could the Chinese be planning the same over the next 3-5 years? What impact will these developments have on local economies across America? That is an issue worthy of our attention.

For more details, click here.

Are We Headed Toward a De-Clustering of America?

Contrarians are good because they make us think outside the box. Joel Kotkin's August 15, 2002 editorial in the Wall Street Journal does that in a way. Kotkin suggests that the heightened concern about security following 9/11, changing demographics, the growing social and economic impacts of new information and communications technology and the continuing erosion of the quality of life in many of America's major cities could deal a deathly blow to recent efforts to strengthen local and state economies through industry cluster development strategies.

Clustering has its intellectual roots in agglomeration economic theory and a variety of recent off-shoot theories that emphasize the spatial concentration of industries, firms, human talent and other economic resources. Cluster-based economic development strategies have been embraced by a wide array of urban areas, states, provinces and even many rural regions across the world. Urbanists like clustering because it suggests that businesses, jobs and people may continue to "hang around" big cities. States emphasizing regional economic development approaches like cluster strategies because clusters provide a strategic focus for economic development and they transcend the constant local political bickering and discord arising from inter-jurisdictional tax base rivalry.

Is Kotkin right? His point that industry cluster strategies will not save cities with a poor quality of life and those that fail to see the broad and pervasive influence of IT on the future location of people and jobs is correct. While many wonderful things have happened in our cities in the past two decades, most U.S. cities continue to suffer from long-term structural economic and social problems. Educational quality is still lagging at a time when it should be leading. Crime is still a very big problem. Rising costs and shrinking payrolls are now even much larger problems given the current state of our economy. Finally, the quality of political leadership--in big and small cities alike--has continued to slip. Yes, these problems are enough to drive out people and jobs.

I'm not so sure about Kotkin's point that security concerns, including terrorist threats, will lead to greater geographic de-centralization of business facilities. The truth is that de-centralization of industries and people has been afoot in the U.S. and many other nations since the 1950s. Find me a "completely safe" place anywhere in the world. The security issue has been debated heavily in circles like CoreNet (the old IDRC) and by other business site selection and economic development groups. The current view seems to be that all businesses have stepped up security measures to some degree, but this issue alone will not spark a mass exodus of businesses out of the big cities. Most businesses are where they are for a reason. For one, they locate facilities within easy reach of their customers and other resources essential to competitiveness.

A more important issue raised in the Kotkin article concerns the influence of information technology (IT) on the location of firms, jobs and people. I am inclined to think that economic developers may be under-estimating the extent to which all this bandwidth being installed will contribute to the further loss of economic value in local places. Yes, it adds value to local businesses and citizens by providing them with connectivity and interactivity that they did not have before. At the same time, IT makes it easier to spend your money and your "attention" anywhere in the world today.

People want more and better options and choices in their life. That's pretty clear. Technology enables choice. That makes IT very powerful when it comes to figuring out where you want to live and work. As a child growing up in the 1950s in a small overprotected community, television, even more so than the local schoolhouse, taught me that the world was a much bigger place than I had ever imagined. The Internet is having that same effect on all of us today. While the physical place we call "community" is vitally important, community in a social and cultural sense, are becoming much more important. The Internet allows us to quickly form "communities of interest" (and yes these are markets too) that span geography. Kotkin and others have wisely reminded all of us to pay closer attention to how technology shapes our lives.

Is de-clustering the next direction for economic development? I think not. Will people, businesses and jobs continue to be geographically mobile in the future? I think we can count on that. The answer in my book is to keep a steady in-flow of new people and businesses all the time to offset your losses from those who want to pack up their tent and pitch it elsewhere. Loyalty to place has its limits. Cities and metro areas that continue to attract new businesses and people will be the winners. And yes, we must do a better job of taking care of what we already have to prevent them from becoming fleet-footed.