How States Can Avoid “Picking Winners” while
creating “winning economies”
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Throughout the past 50 years, state and local
officials have argued over the value and/or
necessity of economic policy favoring one
company or group of companies OR outright
incentives to the same.
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“Corporate welfare”
“The Rich Get Richer”
“Better use for tax money”
“What about the poor?”
“Cronyism”
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“Free market rules supreme”
“Picking winners”
“Immaterial to site location decision”
“Cut taxes and regulation and jobs will sprout”
◦ BTW – this had disastrous results in Iraq
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“Government has no role in the “free”
marketplace”
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Abraham Lincoln (a Whig cum Republican) got
elected to Congress running on a “public works”
platform: river ports, public buildings, etc.
Interstate highway system, built mostly in the
1950s, replaced railroads and created the most
efficient economy in the world
The U.S. Department of Defense created the
semiconductor and sparked the electronic
revolution in a place called California
Crazy federal scientists at DARPA - the Defense
Advanced Research Projects Agency build the
internet and create the dot.com revolution. Al
Gore wishes he was one of them.
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Incentives disappeared in most areas of the
U.S. except in the disadvantaged Southern
states.
Aging industrial areas with high unionization
rates failed to adjust to a new economic
reality – other countries had rebuilt and had
newer, more efficient production
Cost avoidance started the “Sun Belt
Migration” revolution
Armed with tax and cash incentives the
“South invades the North”
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But some were doing what Japan was doing to
the U.S. – gaining market share
In the 1950s an enterprising Governor asked
an electrical engineer at the University of
Illinois if he would help him create a locus of
economic activity, based on emerging
technologies, in this Southern State.
By the 1970s, an “overnight sensation” called
the Research Triangle was the zenith of the
new economy
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The Midwest adopted the worst of the South.
The US Chamber of Commerce called for an
“Industrial Policy” to fight Japan, Inc.
States developed outrageous incentive
programs for “fast growing” companies,
unmindful of the infrastructure that the
Research Triangle had built up to support its
now-famous park.
The feeding frenzies of the 80s erupted into a
host of really bad economic development
policies in the states.
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The small business revolution of the late 70s.
◦ Research says “all jobs created by small business”
◦ “Economic gardening” becomes a new catch phrase
for e.d., designed to accompany the “Small is
Beautiful” craze. The data set was wrong BTW.
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Some states were beginning to look at
“Target Industries” – industry groups that for
reasons known and unknown were prospering
in their regions
By the mid-80s, the term “clusters” emerged
in Arizona as a means of organizing state
economic development strategy
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Innovation clusters are groupings of
companies that “cluster” in particular
geographic areas to share intellectual
innovation, develop labor pools, buy and sell
from one another and generally benefit one
another via proximity to one another. Their
reasons for clustering vary from the presence
of natural resources, research capabilities
nearby, proximity to customers or suppliers
or buyers.
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Clusters are seldom “created” or “recruited”.
They grow around a locus of activity that
poses competitive advantage for the cluster
companies.
Clusters are nurtured or grown with
deliberate investments by direct beneficiaries.
Clusters can be accelerated by strategic
investments by governments in component
elements needed by the cluster to prosper.
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Aerospace
Cleantech
Aviation
Financial services
Bioscience
Software/IT
Tourism
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Agriculture
Energy
Broadcast/Telecom
Beverages*
Hardware IT*
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Japan, Inc. and MITI – picking winners and
losing
◦ Honda discouraged from auto manufacturing. “Stay
with bicycles.”
◦ Real estate investments in the U.S. in the 70s and
80s.
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Use of “design standards” vs. “performance
standards” to keep U.S. fiber optic companies
out of the Japanese market.
These actions are “protectionism” and
“picking winners”. Neither is “purposeful
development” of the economy
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1983: President Ronald Reagan and Ag. Sec.
John Block are flummoxed by failure of PIK
(Payments in Kind) program
Chrysler bailout in 1979 gives glimpse of
“jobs as hostages” and “too big to fail.” Lee
Iaccoca extracts millions from states to keep
Chrysler jobs.
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PRC government taking positions in Tar
Sands, rare minerals
Aligning with mineral rich countries that are
ostracized by UN countries
Created an export-based economy and now
moving toward consumer economy
Massive investments in higher education and
export of students to other countries.
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North Carolina: Research Triangle now
planning to double size of park and will
include State investments in applied
cleantech research for tenants.
New Mexico: film industry is paid to produce
films in state. Poor policy that has cost state
millions
Arizona: state-run incubator through Arizona
State
Texas: Texas Enterprise Fund – cash for jobs
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Requires intensive research and ongoing
updating of findings – clusters change and
cycle differently.
Key elements are supply chains, locational
factors, prominent labor needs, tax
sensitivities, favorable regulatory
environment
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State investments should focus on cluster
components such as research and
development through universities,
transportation improvements, adequate
energy supplies, ease of access to market
through minimal restrictions, broadband
capacity, joint ventures with mutually
beneficial rules for licensing and patent
ownership among others.
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Tax policies that encourage cluster growth,
but do not support individual companies
within the cluster are a must.
State government as a customer of cluster
outputs. Purchasing or otherwise creating a
market or new market for cluster companies.
E.g. 30% RPS created “floor” for wind and
solar companies. Note Colorado Rail,
SUTRAK and Lamar bus manufacturer
Certificate programs, state-paid training
programs for cluster companies
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Place-making: creating a locus of activity for
cluster activity. Examples: Research Triangle
Park, Fitzsimons Campus, Johns Hopkins
Research Park
Attracting and holding federal laboratories
that foster cluster growth: NREL, NOAA, NIST
Funding facilities at college campuses that
stimulate cluster growth
Recruiting and retaining “super star”
scientists or academics for key cluster
programs
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EDOs, Chambers
Colorado Energy Coalition
Colorado Cleantech Industry Association
Colorado Space Coalition
Colorado Software and Internet Association
Metro Denver Aviation Coalition
CO-Labs
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Strong K-12 system that delivers literate 18
year olds to continuing education and
opportunity in clusters
Adequately funding pre K-12 and Higher
Education, especially in cluster-related areas.
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There is the “private marketplace”
The public marketplace where governments
compete for political or economic advantage
◦ Competition for the best students among colleges
◦ Competition for more tax revenues, etc
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And the public-private marketplace where the
interests of both sectors coincide
Understanding and in-depth research on how
these markets intersect is key to purposeful
economic development
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If so, it should be easy to measure.
Labor – is it competitive, competitively
priced?
Infrastructure – is it adequate to move
information, goods and services quickly to
and from markets?
Is there adequate funding for start-ups, new
ventures, Valley of Death companies?
Is research and development funded
competitively compared to other states?
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Is State tax policy aligned with cluster growth
needs and incentives?
Is higher education well-funded and
delivering the graduates needed for clusters?
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Cleantech: First listed as a cluster in 2003. Center of wind,
direct trade route to global centers for cleantech
2005 Governor Owens and Senator Salazar create Colorado
Renewable Colaboratory
Voters approve Renewable Portfolio standard of 10%,
eventually increased to 30%
Ritter introduces 57 bills to advance cluster
Income tax code rewritten to benefit all clusters and primary
employers
Metro Denver WIRED program trains several hundred students
in Cleantech and BIO technologies
Cleantech employment
grows 3.6% annually for last
five years.
Percent of Electricity Generated through
Non-Hydro Renewable Sources
U.S. Energy Information Administration
8th
Highest
Sources of non-hydroelectric renewable energy include biomass, geothermal, solar, and wind.
Many states have focused on expanding these non-hydroelectric energy sources. Colorado’s
percent of non-hydro renewable energy increased from 2.5 percent in 2007 to 6.1 percent in
2008. Wind is the primary source of renewable energy in the state.
Fig. 121
Total Wind Energy Net Generation
U.S. Energy Information Administration
Top 10 States and Colorado
7th
Highest
Only 11 states reported energy generated from wind in 2000. That number jumped to 35 states
in 2009, with Colorado ranking seventh.
*2009 data is preliminary.
Fig. 123
Total Solar Energy Installed Capacity
SNL Financial Operating Capacity Dataset
Top 10 States
6th
Highest
2010
Large scale solar operations are still new in the United States and require significant amounts of
land and sunshine. In 2010, 27 states had quantifiable solar operations.
Fig. 127
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Prior to 2003 Colorado ranked 27th in bio
science companies. Battelle study in 2003.
Strongest segment was devices. Pharma
followed farther behind.
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Fitzsimons construction, accelerated by
creative project manager puts Fitz “in play”
five years ahead of schedule.
Tom Cech’s return led by CU Foundation
gives CU (new building for Tom) and Fitz
Campus international claim to prominence
“Proof of concept” legislation keeps pharma
companies in Metro Denver. Fewer yanked to
Silicon Valley.
Colorado now a “bio state” and ranks in Top
15 in all competitive categories.
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From aerospace to aviation to wind turbines –
Lidar creates huge financial opportunity for
all three
The hybrid aircraft
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Bye Energy
Ascent
UQM
Cesna
Tagging electrons from digital data packets
Total R&D Spending at Academic
Institutions per Capita
National Science Foundation
17th
Highest
Colorado is one of the nation’s centers of public and private R&D spending. This is possibly due to
a strong entrepreneurial economy and substantial investments in Colorado universities by the
federal government, particularly in aerospace, bioscience, and energy.
Fig. 21
Population 25+ Completing High School
U.S. Census Bureau, American Community Survey
17th
Highest
Eighty-nine percent of Colorado’s population aged 25 and over have completed high school,
ranking the state in the top half of the nation.
Fig. 83
Pre-K Resources per Child*
National Institute for Early Education Research
3rd
Lowest
Early childhood education is an essential part of long-term student success. Colorado ranks
below the national average in resources devoted to pre-K education.
*Rankings based on of the 38 states with programs.
Fig. 138
Student/Teacher Ratio in Public Elementary
and Secondary Schools
National Education Association
10th
Highest
With an average of 16.8 students per teacher throughout the state, Colorado’s student-teacher
ratio ranks as one of the 10 highest in the country. The national average is 15.2.
Fig. 144
Student/Teacher Ratio in Public Elementary
and Secondary Schools
National Education Association
10th
Highest
With an average of 16.8 students per teacher throughout the state, Colorado’s student-teacher
ratio ranks as one of the 10 highest in the country. The national average is 15.2.
Fig. 144
Percent of Family Income Needed to Pay for
a Public Four-Year College
NCHEMS Information Center
18th
Highest
Rising college costs and diminished levels of state funding result in a higher share of a family’s
income required for college.
Fig.150
State and Local Public Higher Education
Support per Full-Time Student
NCHEMS Information Center
3rd
Lowest
Colorado continues to offer one of the lowest levels of support per full-time higher education
student. Colorado spends 6.4 percent less than its 2001 peak in the level of support per student.
Fig. 154
Percentage of State Funding for
Transportation (1980 vs. 2010)
1980 Transportation Funding: 12.7%
Transportation Funding
Other State Funding
2010 Transportation Funding: 5.3%
Transportation Funding
Other State Funding
Over 50% of Colorado
highways are now in
“poor” condition.
Purposeful Economic Development gets the
biggest share of the “not equal” jobs