Trends andNews

Are Subsidies Smart?

In a New York Times article ("States Pay for Jobs, but It Doesn't Always Pay Off," November 10, 2003, http://www.nytimes.com/2003/11/10/business/10STAT.html?ex=1069479998&ei=1&en=cdf08588393ce108), Louis Uchitelle reports that Indianapolis gave United Airlines "$320 million in taxpayer money to build what is by all accounts the most technologically advanced aircraft maintenance center in America. But six months ago, the company walked away, leaving the city and state governments out all that money, and no new tenant in sight."

Despite the obvious risks, local and state governments continue to offer location subsidies.  According to Uchitelle,

• Indianapolis is giving Eli Lilly a $106 million package in exchange for a promise to invest $1 billion and add 7,500 jobs by 2009.
  
• Iowa has just authorized $75 million a year until 2010 for corporate subsidies.
• The State of Washington has offered Boeing a $3.2 billion package to manufacture the 7E7 airliner in the state.
  
• New York is creating more "Empire Zones" where companies can locate nearly tax free.
  

Indiana expected that United would by now employ more than 5,000 aircraft mechanics at $25 an hour. United promised to add $500 million to the city's investment. In the end, the airline spent only $229 million, and the payroll peaked at 2,500 mechanics.  In the future, Indiana will offer tax credits rather than upfront "bricks and mortar investments in particular projects."

Academics estimate the magnitude of subsidies nationwide at about $40 billion annually. (Ninety-three cities bid for the United Airlines center that went to Indianapolis.)  Uchitelle concludes that all this is just "escalating a bidding war for a shrunken pool of jobs in America despite the worst squeeze in years on [city and state] budgets."

And not just in the U.S.:

AMD to build 300-mm fab in Dresden.  According to EE Times (December 1, 2003) "Germany offered... $1.5 billion in subsidies, loan guarantees and equity investments" to ensure the fab was built in Dresden.

Intel to invest $375 million in factory in Chengdu, Sichuan province.  Chengdu will offer tax holidays, free land, and free site preparation.  A factory job that would pay $31,000 in the U.S. carries a salary of $1,500 in Chengdu.

Other tidbits from EE Times

China replicates Shanghai Research Center for Integrated Circuits in six other cities.  Author Mike Clendennin does not name the cities (12/8/03), but does note that all are to offer training, consulting, market research, shared tools and testing facilities, and below-market office space for incubating companies.  Drawbacks include the possibility that seven cities spreads resources too thin; that the top-down planning ignores the potential inherent in local initiatives; and that supply chain and alliance problems are not adequately addressed.  China may match Taiwan in technical knowledge in ten years, the article notes, but not in supply chain and market knowledge - not to mention innovation and design expertise.

Shortage of application engineers in India (12/8/03).  Reasons include the Indian technopoleis' emphasis on hardware and software engineering, and "a focus on services rather than products, the lack of a domestic market, and India's physical distance from the end market for electronics products, causing little interaction between designers and customers."  However, the November 10 issue of the same magazine notes that an Indian/Malaysian partnership (the Karnataka and Penang consortia) will use Indian design and Malaysian manufacturing to produce electronic goods for the southeast Asian market.

U.S. nanotech centers.  The 21st Century Nanotechnology R&D Act, signed into law in early December, appropriates $3.7 billion to be divided among eight government agencies.  Expected to benefit are six national Nanoscale Science & Engineering Centers at Columbia University, Cornell, and Rensselaer (all in New York), Harvard, Northwestern University (near Chicago), and Rice University (Houston).

Headlines from Genetic Engineering News www.genengnews.com

Philanthropist Paul Allen commits $100 million to new Allen Institute for Brain Science in Seattle.

Nottingham officially launched BioCity, the UK's latest biotech stronghold.

Iceland's health sector database, valuable because of its geneological completeness, is under attack for reasons of patient privacy and a monopoly license to a private company.

Germany's North-Rhine Westphalia embraces diverse bio-research community.

The Council on Competitiveness and the Embassy of Sweden in the U.S. co-sponsored a symposium on biotech clusters this fall.  Though it highlighted the success of Uppsala's cluster, a wide range of strategies and places were discussed.  Highlights of the lengthy story are at http://www.genengnews.com/backissues.asp, or order reprints from the site.

“We didn’t want to be a bedroom community," says Ms. Yawn.

It's rude to play games with a person's name, but we couldn't resist this one - especially as we so respect the measures taken by Round Rock, Texas - Austin's contiguous northern neighbor and headquarters to Dell Computer Corp. since 1996.  City ED Director Nancy Yawn attributes Round Rock's success to "a very consistent political front and visionary leadership."  (Story in Plants Sites & Parks.)

Round Rock's leadership catalogued the downsides of excessive sprawl:

• A perception that amenities are lost.
• Increased commuting costs and frustrations.
  
• Costly maintenance of transportation infrastructure.
  
• Under- and over-capacity of, e.g., schools as inner neighborhoods are abandoned in favor of hinterlands.
  

Round Rock's solutions include:

• Construction of frontage roads at city expense ($140 million in local sales tax monies) before state funds were available for that purpose.
  
• Contracts guaranteeing water for the booming population until 2050.
• Comprehensive understanding of structural changes in the economy and workforce, and the land-use requirements of new businesses.

Perhaps due to this foresight, Round Rock has doubled in population since 1990 without suffering infrastructure problems.  Fifteen years ago, the city recruited Westinghouse Motor Co. (now TECO-Westinghouse Motor Co.) and Cypress Semiconductor as seeds for a major employment center.  Result: the benefits of technology-driven growth without excessive sprawl.  As Nancy Yawn remarked (she really did), Round Rock wanted to be more than an Austin bedroom suburb.

The Plants Sites & Parks article goes on to mention two encouraging developments in Maryland: The Smart Sites database, and Baltimore's Smart Growth initiative.  Smart Sites lists the economic incentives available for each public site available in established areas. Robin Zimbler of the Maryland Dept. of Planning says, “With one click you can see state enterprise zones, or a historic district, showing the property rehab tax credit, and details of the credit.”  Baltimore's “Come to Work, Stay to Play” campaign revitalized downtown by highlighting the area's quality of life. "The 'Digital Harbor' concept remarketed an area with abandoned manufacturing buildings," according to the magazine.


   
Free Wireless Good for Business (from Computerworld.com, October 2003).  "Some hotels and restaurants say giving away wireless Internet access draws and retains customers and delivers a strong ROI." http://www.computerworld.com/mobiletopics/mobile/story/0,10801,86149,00.html


New Resources

Some new lists of incubators and innovation centers:

• http://www.InventorEd.org/incubators/
• http://www.nal.usda.gov/ttic/statetech.htm (As the URL suggests, many of these are state-run rather than at metro region level.)
  
• http://www.ssti.org/sponsors.htm (Ditto.)
  

Visit the Technopolis Times web site often; new technopolis connections and organizational resources are being added constantly!  http://www.generalinformatics.com/technopolistimes.html

New Newsletter on Finnish Technology http://www.tekes.fi/eng/publications/index.html , FREE by email from the National Technology Agency of Finland, Tekes.

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UTEK Corporation acquires UVentures.com

Craig Zolan <craig@uventures.com>  writes, "I am writing to announce that UTEK Corporation has acquired UVentures.com and [the listserv for university tech transfer managers] Techno-L in an asset purchase. UTEK will continue to provide the Techno-L as a free resource to share knowledge within the technology transfer community."  The press release announcing the acquisition can be found on the UVentures.com site at: http://www.uventures.com/press_releases/utekpurchase.jsp .   More information about UTEK can be found on its web site at: http://www.utekcorp.com .

L-1 visas abused? 

These visas are for intra-company transfers of employees, and so are used by multinationals to put a needed Indian employee, for example, in the U.S. for a limited time.  However, according to Knight Ridder News Service's Victor Godinez, "L-1 visa holders do not have to be paid wages in line with their U.S. counterparts."  This allegedly has led to abuses in which company A will import an L-1 worker it doesn't really need, and then farm out the employee as a contract worker with company B, pocketing the margin.  Rep. John Mica, F-Fla., has introduced a bill that would outlaw this practice.  Critics (http://www.outsourcecongress.org/mica/Mica_L1.html) retort that the proposed bill leaves open another trap door, namely, that company X may import an L-1 worker, and force an American employee of the company to train the L-1 worker.  The company may then off-shore the job of the American worker (to the repatriated L-1 employee), and lay off the American worker.

Korea to expand Daedok Science Town, consolidate other R&D centers

President Roh Moo-Hyun has made science and technology one of his top policy initiatives, and consistently shows interest in scientific matters.  He will increase the role of the National S&T Council and support the Council's National Technology Road Map, aiming to make Korea one of the top eight nations in S&T capability by 2007.  The Road Map names 19 "promising technologies," 19 "next generation technologies," and 12 "future strategic technologies."  The first 19, aimed at near-future upgrades to current practices, focus on semiconductors, displays, appliances, computers, mobile communication, energy and environment. 
     By 2007, up to 25% of Korea's total R&D budget will go to basic science.  By that time, Korea hopes to attract 500 research institutes run by foreign companies, comparable to Shanghai's Pudong New District.  The government will build a cluster of R&D centers for foreign investors in Daedok Science Town and other major science towns in the nation, and tax incentives will be designed to attract the companies.  Smaller existing R&D centers around the country will be urged to merge in order to achieve critical mass.
     Economic uncertainty in recent years has led Korean students to turn away from science in favor of law and medicine.  Roh's initiatives will include the promotion of S&T careers.  (Korea Now report.)

Report from the Northwest

Washington State gets Boeing 7E7 manufacturing.  On the 100th anniversary of the Wright brothers' flight, Boeing announced its decision to manufacture its new plane (which looks a lot like Keiko, the orca from "Free Willy") in Washington.  The decision will bring 800 to 1200 Boeing design, development and manufacturing jobs back to the state, which offered a 20-year, $3.2 billion set of tax incentives and agreed to changes Boeing asked for in state unemployment insurance and worker's compensation rules.  The 7E7's wing, however, regarded as one of the most "high tech" components of the aircraft, will be manufactured in Japan.  Boeing, long headquartered in Washington, moved its corporate offices to Chicago in 2001.  The Oregonian editorializes (12/17/03) that the deal does not guarantee a long-term Boeing presence in Washington - but in the short term, Boeing benefits from something it couldn't get elsewhere: "an experienced and loyal work force in a supportive region."  Technopolis Times will leave it to readers to divide $3.2 billion by 1200 and form their own opinions.

Suzanne Flynn, the Multnomah county (Oregon) auditor, just released an audit of the Strategic Investment Program, the county's property tax abatement program to encourage businesses to locate in Multnomah.  You can download the report, a 10-page PDF file at http://www.co.multnomah.or.us/auditor/.  Flynn said that they did not investigate the overall effectiveness of the program in attracting businesses because such an evaluation was beyond the capacity of her office. Instead they offered some guidelines to prevent abuse of the program. (Thanks to David Mandell for bringing this to TT's attention.)

Do-ers can go elsewhere.  Oregon's new state slogan, "Oregon is for Dreamers," met with fervently tepid response in business and entrepreneurial circles.

Portland-Tokyo nonstop service will probably be re-established when Northwest Airlines completes the purchase of a new aircraft.  Portland has lacked such service since Delta discontinued its flight in early 2001.  Northwest Airlines executives and Port of Portland officials are negotiating concourse configurations at this time, reports The Oregonian.

But what have you done for us lately?  Steve Duin of The Oregonian notes that a successful windows manufacturer (no, not that Windows™) with 21,000 employees in Oregon wants its taxes cut and is lobbying expensively for a 50% cut in the State's already starvation budget.  In 1985, the State sold $1.9 million in bonds to finance the same firm's first facility in southern Oregon and its first 90 employees.  Oregon was able to do so because of the State's good credit rating - which in turn resulted from a healthy tax base.  Ah, life is long and memory short.

Seattle non-profit research institutes gain size, influence, and funding in biomedical arena.  Pacific Northwest Research Institute, the Institute for Systems Biology, Seattle Biomedical Research Institute, and Benaroya Research Institute are examples.  Funding comes from federal (NIH) and foundation (Bill and Melissa Gates Foundation) grants as well as pharmaceutical firms.  The attraction to researchers?  No need to teach, see patients, or maintain the overhead costs of a university.  Researchers must, however, be able to raise their own funds.  (From a Seattle Times report.)

Jargon watch: Chipography, the description of the placement and use of semiconductors in electronic devices.  From Portelligent, Inc., http://www.portelligent.com

Best quote:  "More and more of our imports are now coming from overseas."  George W. Bush on globalization.

Editorials

Do economic development programs "work"?
     Okay, so there's this joke in which an engineer spots a dollar bill on the sidewalk.  His companion, an economist, denies that there could possibly be cash on the sidewalk.  "If there were," he says, "someone would have picked it up." 
     The joke lampoons the language economists use to define market-clearing, and to justify the economic notion of equilibrium.  The story sums up the problem we have with economics: Any theory that has to be stated in the pluperfect subjunctive can't possibly stand up to everyday wear and tear.
     In fact, it is scientifically impossible to prove or disprove a "would have."  And it is a problem all economic developers face: Would that company have located here without the incentive my city provided?
     A recent Brookings Review article, "No Easy Answers: Cautionary Notes for Competitive Cities," suggests the answer is "yes."  This report agrees with several cited previous studies, looking over many years and many locations.  They conclude that companies locate where they wish to locate, whether the site offers incentives or not.   At best - and this is really "at worst" - an incentive may cause a company to locate in one suburb rather than a neighboring one, making no difference in the regional employment pattern.
     Here's what's wrong with that conclusion.  Longitudinal econometric studies can only use what is easily measured by economists: tax incentives, training allowances, land gifts, cost savings from relaxed environmental ordinances, etc.  If these are the variables Brookings and the others studied, their result is not surprising.  Technopolis Times has always maintained that (1) success can be measured only in metropolitan regions, not in cities; and (2) the important factors in economic development programs are not cash incentives to firms, but rather, external networking, strong civic organizations, strong links among a region's sectors, self-investment in education and infrastructure, a culture that celebrates ethical business success, a strong technological base, and strong institutions for fostering entrepreneurship.
     We haven't run the equations, but we've seen this combination make a difference in a great many regions.  The Japanese coiners of the term technopolis may have known that the original polis meant not just the land within the boundaries of the Greek city-state, but also the society residing there.  Our economist colleagues need to understand this too.
     The  Buddhist scholar D.T. Suzuki once delivered a long speech on the total uselessness of prayer.  "But," he concluded with a sheepish smile, "we all do it anyway."  So it is with economic development programs.  As long as someone thinks it might work in a particular case - or as long as a politician sees P.R. value in visible economic development activity - we're going to do it anyway!  (See the synopsis of Louis Uchitelle's New York Times article elsewhere in this issue of Technopolis Issues & Events.)
     We'll succeed by building social capital and minimizing cash incentives.  We'll succeed by keeping our eye on the real situation, and not on the "would haves."
     Our friend the engineer, of course, pocketed the dollar.

Needless tension, high irony
     The Economist reports (December 1, 2003) that Dell (headquartered in Austin) is reversing its shift of telephone support activity to India, due to alleged customer complaints about the quality of service, in favor of increasing phone support jobs in Texas.  Red herrings are already flying, as regards the "strange" accents of operators, and Dell's supposed commitment to economic development in Bangalore. If Indians pulled out of the Bay Area, fumed one Bangalore booster, that would be the end of Silicon Valley!
     It should be easy to test satisfaction levels with U.S. vs. Indian operators; any high school student could design the experiment.  One irony is that The Economist reports no such evidence.  Another is that globalization was supposed to spread economic activity around the world strictly on the basis of price advantage and acceptable quality.  Seems that political bluster beats out the scientific method, and trumps economic theory too.
     We suspect there is no reason for all the rancor.  The complaints we've heard personally have been "equal opportunity complaints": Customer support for electronics products is just as likely to be unhelpful and delivered in impenetrable accents regardless of where in the world the operators are located.  We hope manufacturers will invest in better service training before customers and suppliers revolt at the same time.

Technopolis Times’ Creed
* Innovation creates sustainable wealth in metropolitan regions where there is easy interaction among the education, government, business, financial, transportation, telecomm, press, arts & entertainment, nonprofit/NGO, and tourism sectors.
* Wealth is enhanced when these metro regions network with each other, especially across national borders.
* The keys to success are entrepreneurship; critical-mass clusters in strategic industries; social capital; and civic activism.
Technopolis Times is here to help aspiring regions succeed. 

Events

Jan 13th, 2004, 1:00pm - 5:00pm: Wireless Communications: A Primer <http://msg1svc.net/servlet/Gateway?p=atc&u=5724&et=H&s=2621>
Speaker: Ted Rappaport, UT Professor
Where: MCC Building, Austin Texas
The Austin Wireless Alliance (AWA) will conduct a Wireless Workshop targeted at non-technical professionals. The AWA event will follow the announcement by the IC² Institute of its Wireless Future report. IC² and AWA have coordinated the report announcement and the workshop to provide a broad picture of the growth and potential for wireless technologies in Austin and Central Texas.

See the Technopolis Times web site http://www.generalinformatics.com/technopolistimes.html#wconfs  for more conference listings. 

Also see http://www.technomanagement.net/conferences.htm

Ted's lawyer wants to remind you that Technopolis Times 'Trends and News' and 'Issues & Events' are compilations of 3rd-party reports.  Technopolis Times and General Informatics LLC are not responsible for their accuracy.
 

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