Clustering/agglomeration economies and revival of Southern California's space sector

 

The book, The Rise of the Gunbelt: Military Remapping of Industrial America, describes how the Southwestern industrial economy was built on military spending.  

Southern California's industrial sector in part was built on the military-defense industry, and out of that grew businesses focused on "space" as opposed to aerospace.

As companies consolidated, manufacturing facilities closed and headquarters operations moved, leading to a severe decline in industrial employment.

The Los Angeles Times is reporting on a renewal of business development in the sector, "The space race is transforming Southern California’s economy — again," partly as a result of SpaceX having most of its engineering operations in Orange County.

Some 128 aerospace, artificial intelligence and companies in other fields have been founded by former SpaceX employees — with 96 started in the last five years still in operation, according to the alumnifounders.com website run by a San Francisco tech executive.

Nearly half, or 63, were founded in Southern California, including 20 in aerospace. No other region comes close, including Silicon Valley or the Pacific Northwest, where Jeff Bezos’ Blue Origin rocket company is based in Kent, Wash.

Some companies just come to the region to be close to same talent pool and aerospace manufacturing base that first attracted SpaceX. Rocket Lab, which launches small satellites, was founded in New Zealand but moved to the region in 2013 and opened new headquarters in Long Beach in 2020.

... A forthcoming report by the Los Angeles Economic Development Corp. shows the county’s aerospace and defense industries added 11,000 jobs between 2022 and 2024. While those 58,700 plus total jobs are well below the historic peak, they had an average wage of $141,110 — more than twice the county average.

“A lot of folks have kind of made the assumption that the aerospace and defense industry has left the entire region,” said Stephen Cheung, chief executive of the organization. “What they didn’t see is a lot of the manufacturing was still here, and over the last 10 years, you’ve been seeing this transition into space commercialization, and now that’s stimulating a whole new ecosystem.”

Clustering and agglomeration economies:

-- "How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a more robust and independent biotech sector," 2021
-- "Federal government research hub development initiative," 2023
-- "Universities and ancillary economic development (versus the anti-research agenda of the Trump Administration)," 2025
-- "Next Phase of Clustering of Business away from the Midwest," 2022

The Trump Administration aims to destroy the US's competitive advantage in technology development and innovation.

-- "Trump is destroying 100 years of competitive advantage in 100 days," Washington Post
-- "Crippling America’s Innovation Economy" Project Syndicate
-- "Attacks on the U.S. Innovation Ecosystem Are an Attack on a Wellspring of American Prosperity," Center for American Progress
-- "Trump Is Killing American Innovation," Foreign Affairs

University-based innovation:

-- "UM research announces 3rd straight increase in inventions from university work," Crain's Detroit Business

The University of Michigan achieved another year of research commercialization records for fiscal year 2025, with 673 invention reports and 326 license and option agreements. The news comes as cuts to university research — both from the federal administration and state government — loom.

... UM also launched 31 startup companies in 2025, only the second time the university has done so since 2020.

-- "UC San Diego ranks top 10 in world for universities driving innovation," San Diego Union Tribune.

 -- Top Fifty Universities Powering Global Innovation, Clarivate

The paper includes: A comprehensive analysis and top 50 ranking of the universities leading in research-to-innovation impact. The key relationships between universities and leading innovators. Visualized pathways showing global knowledge flow patterns between university research and industrial inventions.

Universities and ancillary economic development (versus the anti-research agenda of the Trump Administration)

The other day I was caught by an article, "A Battery That Lasts 50% Longer Is Finally in Production"in the Wall Street Journal about a solid state battery company that has been spun off from research at the University of Maryland.  

Past writings lament that such spin offs seem to be rare in DC especially ("Naturally occurring innovation districts | Technology districts and the tech sector" [2014} and "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," [2016]), but also from the UM ("Revisiting past blog entries: College Park as a college town and economic development | PG County and Amazon" [2018]).  

I'm not sure about Virginia, which has the Center for Innovative Technology in Loudoun County, but also majorly benefits from military spending ("The East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the most," [2021]). NIH in MontgomeryCounty has been successful with spin offs (The NIH Plan for Accelerating Technology Transfer and Commercialization of Federal Research in Support of High Growth Businesses), even as other agencies like NIST aren't quite so fecund.

In "How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a more robust and independent biotech sector" (2019), I made the point that there are some blockbuster universities doing spinoffs, but maybe we don't know the right set of characteristics to distribute this effect more widely.  

Then again, I haven't researched the topic deeply.  For example the IEEE Spectrum article, "The Birth of the University as Innovation Incubator," which is an excerpt from the book Every American an Innovator:  How Innovation Became a Way of Life).

Work by Saxenian (Regional Advantage: Culture and Competition in Silicon Valley and Route 128 ) compare the different ecosystems of Greater Boston to the Silicon Valley, calling the formal top-down, but affiliated with universities, and the latter ground up.

-- "The Rise of Academic Incubators," Gensler
-- "How do incubators and accelerators support start-ups?,"  Universities UK
-- University Innovation Incubator Network

In the New York Times article "Red-State Universities Will Get Hit by Trump’s Cuts, Too," Richard Florida makes these points:

If the United States wants to compete with other countries for manufacturing jobs, our best strategy is to leverage our exceptional university research capabilities to rebuild our manufacturing base.

Universities have long played pivotal roles in building world-class high-tech economies: Stanford University helped make Silicon Valley what it is today by fostering technological excellence in electrical engineering, establishing the Stanford Research Park and educating the founders of startups like Hewlett-Packard. Individuals from universities like M.I.T. and Harvard played central roles in transforming Boston from a center of textile and boot and shoe manufacturing to a health-sciences hub by starting the world’s first modern venture capital fund to commercialize academic research.

Carnegie Mellon University helped revitalize Pittsburgh through targeted investments in computer science, artificial intelligence and robotics, coupled with strategic initiatives to bolster local entrepreneurship. The University of Texas at Austin mobilized local business and political leaders to transform Austin into a leading high-tech region. In all of these cases, universities led efforts to reposition their regional economies toward high-tech sectors such as computers, software, biotechnology and robotics.

... Our solutions must address today’s reality, not yesterday’s economy. Addressing this gap by fusing academic innovation with industrial production is even more important today, as new technologies transform old industries. Cars, for example, are evolving from internal combustion engines toward hybrid and electric, along with self-driving technologies and connected computing.

... Today, the economic role of universities is more critical than ever. As globalization and corporate consolidation stripped older industrial cities of their homegrown corporate headquarters, universities were often left as the primary engines of innovation and economic growth. To capitalize on their rising importance as economic anchors, the Biden administration made substantial investments in place-based industrial policy — aimed at revitalizing struggling regions.

Instead, the Trump Administration is doing all it can to diminish universities especially their research function.  Florida makes the point that red state universities produce spinoffs too.  

E.g. In Missouri, many universities focus on agritech research, Texas on all likes, including the world's leader cancer research center, embedded in a center with more than 50+ related institutions.  And there is the Research Triangle in North Carolina.

Seemingly believing that pointy headed professors doing research are only in blue states, like Harvard, is a serious mis-interpretation of reality. 

Ironically it's as if the Trump Administration is using the book Rise of the Creative Class as a primer for what to oppose, rather than a guide to community improvement and opportunities for social and capital investment.

======

Interestingly, I saw a piece featuring the Secretary of the Department of Enegy, stating the national labs (like Fermi and Livermore) faced no threats from the Administration.  What makes them different from NIH, the National Science Foundation or university-based research.  Although federal labs, both the independent ones, and those that are part of federal agencies, have seen layoffs and cutbacks too.

-- "U.S. Scientists Warn That Trump’s Cuts Will Set Off a Brain Drain As the United States cuts budgets and restricts immigration, Chin," New York Times

Relearning and retaining (or not) old lessons: Urban economics, agglomeration economies, and adaptive reuse of "a large stock of old buildings"

charlie responded to the recent entry, "Learning what not to do from the New England Patriots football team," saying I wasn't saying anything really new.  True.  But it seems that people have a hard time learning or retaining previous knowledge, so sadly these kinds of points need to be constantly repeated.

Separately, in response to the previous entry, "Federal government research hub development initiative," charlie included links to two important articles, "The ‘bump factor’ returns to Kendall Square: Random meetings in the compact hub help to fuel the local biotech cluster," from the Boston Globe and "The duo turning old Milan into a snapshot of contemporary design," from the Financial Times, which reiterate some of the arguments of the entry.

At the same time, statements in both articles illustrate the point of the leadership entry, that foundational understandings in urban economics, specifically the concept of agglomeration economies, and the value of old buildings in supporting the development of new businesses, seem to get lost, or that people would rather come up with new terms, without acknowledging the original learning.

Graphic: The benefits of agglomeration: Centre for Cities, "The impact of agglomeration on the economy." 

Like "bump factor" instead of the term "agglomeration economies."

Agglomeration economies and the biotech cluster in Cambridge Massachusetts.The Globe article explains why I am such a proponent of face to face, cluster development and agglomeration economies. From the article:

The vaunted “bump factor” is thriving again in this biosciences hub after a pandemic that limited human contact and forced many to retreat to their home offices. The factor has adjusted to the new hybrid work world — bumping mostly happens Tuesday through Thursday. But the ease with which drug developers and financiers can run into each other remains a competitive advantage for the neighborhood dubbed “the most innovative square mile on planet Earth.”' 

”It’s our secret sauce,” said Kendalle Burlin O’Connell, chief executive of the Massachusetts Biotechnology Council. The potential to generate new ideas and partnerships through chance encounters is unmatched by less compact and more car-reliant rival clusters like California’s Bay Area or North Carolina’s Research Triangle, say Kendall Square boosters. Even in Boston’s Seaport district, fast emerging as a satellite biotech hub, the buildings are too isolated and the blocks too large to support a healthy bump factor. 

... After three years of relative isolation, many are hungry for connection. Some gatherings are larger now than in pre-pandemic times. Attendance at Thursday night programs and networking events at Venture Care have drawn an average of 419 people this fall, up from353 in 2019.

... But close encounters during the rest of the week were a selling point in the successful campaign to lure the Advanced Research Projects Agency for Health, a new federal research agency known as ARPA-H, to Cambridge, said O’Connell, the MassBio CEO.

You can make work work well with Zoom if you are committed to collaboration with the right people and the right tools.  But you lose out on the ability to generate external serendipitous connections. 

I remember when the multimedia Internet was first launched so to speak, and I was on a marketing e-list where the new field of e-commerce and Internet based marketing was the primary topic. 

The founder of the list was big on the creation of "Internet Malls" modeled on real malls. I argued with him that unlike IRL, there was no reason for people on the Internet mall to shop "adjacencies."  In a mall you walk past other stores so your top of mind awareness is pricked.  But on the Internet, you go straight to your destination without being pricked with other sites (unless you use Google search or once you do a search within Amazon, etc.).

But in work, those adjacencies may be essential in sparking new ideas, relationships, funding deals, etc. 

Think of Katalin Kariko at the copy machine where she met Drew Fleischman.  If she hadn't met Fleischman and gotten some financial support through his connections at Penn, maybe she would have left, and not developed further the mRNA technologies that went into the covid vaccine.

The lesson is that in these districts especially the smaller ones, you need to work to build the systems, events, restaurants, etc., that help spark serendipitous encounters. Although the Boston (Cambridge) people really should understand urban economics better. I guess Ed Glaeser isn't doing his job.

Old buildings/new buildings and arts and design as consumption versus production: Milan.  I have been writing about this topic for many years.  

The FT article discusses a group in Milan, Alcova, sparked by Milan's annual Design Week, that does "installations" in abandoned buildings and structures, making a seemingly interesting point about reuse of old buildings for the arts versus new arts centers.  About how Alcova is unique.  They aren't.  But I guess a key lesson of the last few decades of urban revitalization has been lost.

In reality, what they think of as new is very old, something Jane Jacobs wrote about in Death and Life of Great American Cities, published in 1961!, about the value of cities maintaining a large stock of old buildings to support innovation, because (before the modernized finance system which refinances everything so costs go up) old buildings are paid off and have low rents, and startups need low rents.

Note that over the past 30 years, in Dublin (a vacated bus terminal in Temple Bar), Helsinki (Cabelfactory), and Marseille (La Friche), among others, arts based revitalization has been stoked by the redevelopment of what had been white elephant buildings.

Midtown Exchange, Minneapolis.

Historic preservation as an urban revitalization strategy is all about adaptive reuse of old buildings to support new uses.  There are thousands of examples across the country.  

One is the reuse of the Sprague Electric campus in North Adams Massachusetts for the Massachusetts Museum of Contemporary Arts.  

Another is the adaptation of old Sears combination catalog distribution centers and department stores in cities like Minneapolis and Memphis as multiuse mixed use facilities.  

In Los Angeles they are trying to figure this out with the old Sears in Boyle Heights.  Baltimore did this with a Montgomery Ward catalog distribution center and store.  Etc.

Until more recently, with the boom of new construction (now slackened in the post-covid business environment), historic preservation was the most successful urban revitalization strategy around.  Good books on this are Cities Back from the Edge, The Living Downtown, and Changing Places.  

I think the real difference is between money and not money, bootstraps versus top down, and arts as production versus arts as consumption (presenting arts performances to static audiences). 

For example, recently opened large arts centers, The Shed in the Hudson Yards and the Perelman at Ground Zero in NYC, and the originally named Factory based on Manchester music history, now called Aviva Studios after a donor are all new from the ground up.  They cost hundreds of millions of dollars to build. And they are focused on arts as presentation and consumption.

Those can be hard to fund continually, although NYC is a different situation entirely. I know the Kimmel Center in Philadelphia has ongoing funding issues.  Reviving the Cabelfactory or La Friche cost almost nothing by comparison.

Arts production versus consumption is what John Montgomery discusses in his original paper on the subject, now 20 years old. Cultural Quarters as Mechanisms for Urban Regeneration. Part 1: Conceptualising Cultural Quarters is discussed in my original "Arts, culture districts and revitalization" entry in 2009, but the entry has been updated a bunch of times.  

It's the difference too between a building and a multi building arts district/cultural quarter/innovation district.  Also, the new from the ground up arts centers are about consumption, not production. 

Characteristics of cultural quarters
From Montgomery (2003).  Slightly revised and reordered 

1. Cultural venues at a variety of scales, including small and medium. 
2. Availability of workspaces for artists and low-cost cultural producers. 
3. Small-firm economic development in the cultural sectors. 
4. Managed workspaces for office and studio users. 
5. Location of arts development agencies and companies. 
6. Arts and media training and education. 
7. Art in the environment (public art, arts incorporated into buildings, etc.)
8. Community arts development initiatives. 
9. Stable arts funding. 
10. Identity, image development, branding and marketing support. 
11. Complementary day-time uses. 
12. Complementary evening uses.

From the FT article: 

Where many cities think cultural infrastructure means financing new architecture, Grima and Ciuffi propose a new paradigm: working, through temporary interventions, with what already exists, offering a blueprint that administrations can follow. “If we really want to talk about sustainability in the design field and respect for the environment, the first step an architect must take, paradoxically, is not to build,” says Grima, adding that his profession has historically “been very animated by the impetus to do new things”. 

... Alcova was founded at a pivotal moment in the history of Milan, after the 2015 Expo, when big brands began to come to the Design Week in larger numbers. “This made it more difficult for young people to find space,” Grima recalls. “It seemed a shame to us, because everyone comes to Milan to see the future of design. We said to ourselves, ‘There is an opportunity here of doing something new.’”

The article also discusses how with the rise in success of Milan's Design Week, small firms are being crowded out by large firms and their ability to add underutilized buildings and structures to the mix maintains the ability of small firms to participate because of the way they offer participation to small firms only.

That only reiterates the point made by Jacobs. 

Federal government research hub development initiative

I didn't know NASA originally planned for a big electronics hub in Boston's Kendall Square, as MIT's Draper Laboratory was an original developer of various electronics systems for the Apollo space program.  The hub opened, but was closed three years later ("‘Cambridge, we have a problem’: The true story of NASA’s center in Kendall Square," Boston Globe).  

A new building for the Volpe Center.

One of the deaccessioned buildings was transferred to the US Department of Transportation for the development of a transportation research center now known as the Volpe National Transportation Systems Center ("New Volpe Transportation Center opens as part of $750 million deal between MIT and feds," Globe).

It's hard to say if the NASA center had stayed would it have fostered the development of spinoff businesses, because after the Apollo program, NASA's space program has shrunk.  But the Volpe Center hasn't fostered spinoff businesses either.  

OTOH, Boston has blossomed as a center for biotechnology.  See "Casebook illustration of agglomeration economies: Kendall Square and biotech."

For some insight into how different research operations have  significantly different rates and capacities for the development of spinoff businesses, see "How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a more robust and independent biotech sector." 

Also see writings on innovation districts and quarters more generally.

Federal scientific and technology research.  Michael Lewis has a good book, The Fifth Risk, on the investment by the federal government in the development of science and technology, like weather prediction systems and the work of federal laboratories.  Decades ago, I worked for a group focused on chemistry research and development, and a number of federal government labs sponsored by the Department of Energy were members.  

USDA has a number of research labs.  The Department of Commerce has National Institute of Standards and Technology in Montgomery County, and the Department of Health and Human Services has the National Institutes of Health in Montgomery County and the CDC in Atlanta.  The Department of Transportation supports research centers across the country as well.  The National Science Foundation funds research of all types, etc.  Medical research is funded by a number of agencies and some cities have become biotech centers as a result.  NASA funds research labs too, like at Caltech and the Goddard Research Center, also in Montgomery County.

The Department of Defense's Advanced Research Projects Agency is famous for its support of the development of various technologies, including what became "the Internet."  DARPA has spawned ARPA-H, focused on health.  The Department of Defense as a customer of technology firms has also spurred economic development.

Federal laboratories too have different success rates for spurring the development and adoption of new technologies and business opportunities.  Overall, the military has the most spinoffs ("The East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the most.")

New federal research hub seeding efforts.  Recognizing the benefits of federally-funded and initiated research to the economic development of the nation, the Biden Administration is funding the development of research hubs across the nation ("31 communities tapped as innovation hub finalists," Route 50).  From the article:

In a move aimed at expanding the tech sector’s economic development engine to more parts of the country, the Biden administration on Monday named 31 communities as innovation hubs that will work to advance a range of technologies, including autonomous systems, quantum computing, biomedicine and green energy. 

With tens of millions in federal funding, the selected consortiums—made up of state and local governments, educational institutions, businesses and community groups in 32 states and Puerto Rico—now have an opportunity to turn themselves into global players in advanced technology. 

“We're doing this from coast to coast, in the heartland, red states and blue states, small towns, cities of all sizes,” President Joe Biden said at a press conference.

The funding for the hubs comes from last year’s $54.2 billion CHIPS Act. Most of that capital went toward subsidies to encourage companies to increase the production of U.S.-manufactured semiconductors. The legislation also called for spending $10 billion to create 20 Regional Innovation and Technology Hubs over the next five years that would research, develop and commercialize a wide range of advanced technologies. The 31 proposals will compete in the coming years to be named one of hubs. 

However, because Congress has only formally approved spending the first $500 million of the money, only a few of the innovation hub proposals are sure to get funding in the next year. 

Already there are winners and losers ("Michigan doesn't make cut for list of new federal tech hubs," Detroit Free Press, "Minnesota's newly designated med-tech hub eligible for millions in federal funding ," Minneapolis Star-Tribune, "Baltimore selected as federal tech hub for artificial intelligence and biotechnology," Baltimore Sun).

This is important to do, and spreading around the largesse is good.  But it's hard to successfully develop spinoff technologies and businesses, it's a very long process, and it's easier when you have something to start with already, as the Pfizer/Ann Arbor entry makes clear.

Pittsburgh is a great example.  Richard Florida's book The Rise of the Creative Class is partly about the then "failure" of Pittsburgh to retain start up businesses as they grew and developed, because the ecosystem to support such businesses as they grew just wasn't there.  

But over time that ecosystem developed ("Carnegie Mellon, Region, To Share Benefits of $62.7M Build Back Better Grant," CMU press release, "Pittsburgh’s tech clusters: Oakland, Lawrenceville, Strip District … and O’Hara," Pittsburgh Business Journal), just as the venture capital base in Michigan developed to the point where it could support the development of biotechnology businesses in Ann Arbor, and now Pittsburgh is much more competitive in developing and retaining startups.

From the PBJ:

Pittsburgh has emerged as a center of technology research and development, particularly with respect to the autonomy industry, but the region’s strength in the field of life sciences and medical technology is equally impressive. 

The University of Pittsburgh is one of the top five in National Institutes of Health funding and the region is ripe with talent and an ecosystem of successful public and privately held companies in the field. 

Just as robotics firms have clustered in certain locations, so too have leading companies in the biotech and related medical technology industries. Oakland, Lawrenceville and the Strip District are well known hot beds of innovation activity, but there’s another that's sometimes overlooked: O’Hara Township.

Not only is O’Hara Township where RIDC’s first development project resides — RIDC O’Hara — it’s one of the first planned light industrial parks in the country, and it’s seen the launch of multiple prominent tech startups. And after more than 60 years, it continues to be home to a thriving life sciences cluster, including companies involved in cutting edge research and the production of life saving products. 

Among O’Hara’s attributes, which have been attractive to tech and life science companies alike, include: 

• Proximity to the universities in Oakland and other tech companies in Lawrenceville and the Strip District, which are only a few minutes’ drive away. 
• Free parking and considerably lower costs for space than in the denser city neighborhoods. 
• Easy access to the Pennsylvania Turnpike, making it a commuting destination for a large portion of the region’s workforce. 

Boston is another example, anchored by MIT and Harvard.

As I wrote in the Ann Arbor article, some universities are better than others at spinoff business and technology development, and it is worth figuring out those characteristics and conditions, in order to foster more speedy success elsewhere.

... the reality is that there are six to seven universities that seem to spin off successful start ups at a scale far beyond the rest:

• MIT and Harvard in Boston
• Stanford University in Palo Alto/Silicon Valley
• University of California San Diego
• University of California San Francisco
• maybe the University of Washington in Seattle (Microsoft located there because that's where its founders lived before leaving for college, Amazon started up in Seattle because of the entrepreneurial culture created by Microsoft, and over time UW has gotten more involved in that ecosystem)
• University of Texas Austin contributed to the development of an IT cluster in Texas, but key events like the creation of Texas Instruments had little to do with Austin ("The launch and evolution of a technology‐based economy: The case of Austin Texas," Growth and Change, 50:2, 2019).

There are probably some I've missed.

OTOH, there is also the story of Kariko Katalin at the University of Pennsylvania.  She was dissed by administrators for decades but persevered, developing the mRNA technologies that led to the successful development of covid vaccines.  She just won the Nobel Prize in Medicine, after a career of hardship ("A Penn official once told Katalin Karikó she was ‘not of faculty quality.’ Her work there just won a Nobel Prize.," Philadelphia Inquirer).

Clusters can be relative.  I used to believe that only the leading clusters had advantages, that secondary locations had no chance.

Now I don't believe that. There is a place for secondary or peripheral locations. They won't be Cambridge, but they can still be significant centers with opportunities for growth, especially locally.

But you really have to work it:

-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014
-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016

(Reprinted.)  Learning from Europe: Knowledge locations in cities.  In 2013, I wrote about Helsinki, "Helsinki as an example of creative industries driving urban revitalization programs," for the Europe in Baltimore project conducted by the Washington Chapter of the European Union National Institutes of Culture.

Design is a key element of Helsinki's identity and economy.  And while writing the article, I learned a lot which has influenced my thinking ever since, about cultural planning, cultural production, systematic planning of new districts, specifically Arabianranta, where the Aalto University is now located, assigning cultural planners to districts, libraries, and more.

An article on Arabianranta, 

"Developing creative quarters in cities: policy lessons from 'Art and design city' Arabianranta, Helsinki," Van Tuijl, Carvalho, and Van Haaren, Urban Research & Practice 6(2):211-218 · June 2013

introduced me to a new line of thinking about "creative quarters," which we might call Arts Districts 2.0.

The research was part of a larger project which resulted in the book Creating Knowledge Locations in Cities: Innovation and Integration Challenges.  (This is a pdf of the book.)

Note that Brookings Institution has a similar program, Innovation Districts, but I like the writings from Europe better.

Straws and puffery: USC's DC "campus" as a lever for downtown revival

I have been interested in the opportunity for higher education infused urban revitalization for decades.  

In DC, for awhile I was a Main Street manager in the Brookland neighborhood, which is home to Catholic University, Trinity Washington University and near Howard University, and I touted the potential of student spending as an element of commercial district revitalization.

Student spending.  The problem with that is students spend money in very narrow ways.  At the time those universities were interior focused and I promoted the idea of moving the CUA bookstore to 12th Street NE. (Howard does have its bookstore on Georgia Avenue and they tried for a hotel and have worked on developing a town center there for a couple decades).

That didn't happen, but did with an campus adjacent development--Monroe Street Market--on land owned by CUA, but creating a competing retail center against the 12th Street commercial district, which still limps along today, 10 years after the opening of Monroe Street Market.

Students spend most of their money on food and drink, books, and sundries.  You need a lot more students than CUA (6,700) or Trinity (1,800) to have a real impact on a local commercial district.

I went to the University of Michigan, which has a two major retail districts abutting the campus (and a couple of other little ones).  But these days, UM has 51,000 students--it was the low 30,000s when I went there.

Businesses developed out of university-based research.  Another element is business spinoffs from university-based research--medical, pharmaceutical, engineering, business, IT.  DC's universities aren't particularly good at that either, although some does happen, but the businesses usually end up in the suburbs, where there is more of a business ecosystem, and/or is where the principals live.

In "How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a more robust and independent biotech sector" (2021) I suggested that some colleges are particularly good at spin off business development and we should figure out how to duplicate and replicate that.  

I didn't mention University of Pennsylvania and they may or may not be good at spinning off independent businesses, but they have a big revenue stream from pharmaceutical royalties ("Research behind COVID-19 vaccines reaps close to $1 billion in royalties for Penn," "COVID vaccines pushed Penn’s licensing revenue over $1 billion last year, after the school ranked No. 1 in 2021," Philadelphia Inquirer).  Less so today, but the Philadelphia-NJ area was once a center of chemical and pharmaceutical research and manufacturing, so it makes sense that Penn still is a factor in that field.

Faculty concentration as talent and an element of community development.  Faculty creating a cluster, having bright children in schools, supporting community institutions, etc., is another element of community revitalization, especially of schools, but the faculty at DC's colleges don't seem to be clustered, at least not in the way that NIH staff children have on Montgomery County schools.

-- "Revisiting past blog entries: College Park as a college town and economic development | PG County and Amazon," 2018
-- "To be a great city, College Park Maryland needs some "there", it needs a center," 2013
-- "More Prince George's County: College Park's militant refusal to become a college town makes it impossible for the city(and maybe the County) to become a great place," 2015
-- "College town follow up: alumni as residents and contributions to community capital," 2015

Real estate development.  Some schools have invested in nearby commercial districts, like Catholic University mentioned above.  The University of Connecticut ("UConn Decides to Build Its Own College Town," New York Times) and University of Maryland are trying to create town centers which otherwise don't exist.  Ohio State University has a major investment program in the High Street district.  

University of Pennsylvania and Mercer University in Macon, Georgia have invested in neighborhood revitalization, and many colleges have special mortgage financing programs for faculty and staff which help to bring faculty close to the campus.  George Washington University owns a huge amount of commercial property around its campus, which is a major source of revenue.  Yale University too is a big factor in New Haven real estate.  Etc.

The Lincoln Land Institute has a program working with universities on this.

Unrelatedly, Ann Arbor, where the University has grown its enrollment by more than 50% in the past 40 years, is undergoing an intensification that is a national outlier, with many small scale buildings in the core of the city being sold, demolished and replaced with multistory buildings.

I wrote how a block next to where I lived was consolidated and converted to a multiunit apartment building ("Example of whole block intensification in Ann Arbor, Michigan," "Land use intensification in Ann Arbor").  

I just learned that another place where I lived will be demolished for a new dormitory ("Saying goodbye to Ann Arbor's Marshall Court: Houses to be demolished for new dorm," Ann Arbor News).

Athletics.  Some of the major college football and basketball teams can have significant local economic impact, although a lot of the time, the effect is muted ("Tourism economic impact of University of Michigan football").  

Interestingly, DePaul University, known for basketball, with subsidy from Chicago, built a new arena off campus in the Convention Center district.  Some cities like Waco for Baylor University, have provided financial support for college football stadiums and arenas.  There is such a project right now in Kalamazoo, Michigan for a mixed use facility that will have Western Michigan University teams as anchor tenants ("Plans revealed for new arena in downtown Kalamazoo," Kalamazoo Gazette).

The question becomes: what kinds of schools are good at stoking revitalization?  I remember when I went to UM, Eastern Michigan University in next door Ypsilanti was touted for moving their business school to the Downtown.  When I applied for a job in Hyattsville, I suggested they try to get University of Maryland to move their Art School to the Route 1/Rhode Island Avenue corridor, to anchor the Gateway Arts District.  The University of Tennessee moved its architecture school to Downtown Knoxville.  And the GMU campus at Virginia Square in Arlington, Virginia, which has the policy and law schools, and other programs.

Similarly, the creation of Appalachian School of Law in rural Virginia was touted as a way to build the economic power of the region ("Appalachian School of Law receives final installment of $6 million funding package," Bluefield Daily Telegraph).

EMU and ASL haven't had much impact.  I don't know about UT.  And people aren't calling Arlington a college town.

Commuter school versus residential campus versus "night school" versus semester in X city program.  Besides how big the school is, a goodly part of this comes down to the nature of the program.  Residentially-based schools are likely to have more economic impact on local stores, while commuter and night school students are likely to spend minimal time on campus or in nearby commercial districts outside of class.

Leveraging higher education institutions for urban economic development. It is possible to leverage higher education institutions in important ways.  But it needs to be purposive.  Trickle down doesn't work that well.  I've written about it a lot:

-- "The other George Miller idea: creating multi-college innovation centers in (cities) Philadelphia | Creating public library-college education centers as revitalization initiatives," 2021
-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016
-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014
-- "Universities as elements of urban/downtown revitalization: the Portland State story and more," 2014
-- "President of Washington State University dies: fostered development of the "University District" adjacent to Downtown Spokane," 2015

Making the point that DC in particular doesn't seem to be very good at it.

Puffery.  That's why I have to laugh at the article in today's Post about USC, "D.C. officials hope new USC campus can aid in downtown’s comeback."  From the article:

District officials have spent months figuring out how to counter negative economic trends spurred by emptied offices downtown. But their efforts to repopulate the area are set to get a big boost from the University of Southern California — which on Wednesday unveiled its East Coast campus, in the heart of D.C.’s business district.

USC’s “Capital Campus” will transform the 60,000-square-foot, crescent-shaped building at 1771 N St. NW, previously occupied by the National Association of Broadcasters, into a home base for students and graduates of the Los Angeles-based university. The official opening places USC among a growing array of universities with hubs in the District, giving students a chance to capitalize on political and policy-based career opportunities that have become synonymous with Washington.

USC President Carol Folt says the hub could draw nearly 1,000 of the university’s students to D.C. each academic term, potentially tripling or quadrupling the university’s presence in the city. For D.C. Mayor Muriel E. Bowser (D), who toured the facility with Folt on Tuesday, that prospect fits squarely into her administration’s plan to “reimagine” sectors of downtown that have long been associated with large office buildings and the working professionals within.

It's a small program that won't have anywhere near the impact of the existing major schools that are already based in the city: American University (14,318 students); George Washington University (25,613 students--this includes their Virginia campus); Georgetown University (19,371 students); Howard University (10,000 students), etc.  (UDC like CUA and Trinity is smaller.)

As it is there are a bunch of university centers in the city already similar to what USC is launching.  What kind of substantive economic impact do they have?  I know I haven't noticed much.  

Plus there is Johns Hopkins University, which has had a comparable campus (a couple buildings) in Dupont Circle for decades and is moving to the former Newseum ("Former Newseum almost ready for Johns Hopkins graduate students" WTOP radio)--and that's a 420,000 s.f., project, and it seems as if they'll also run the Dupont Circle buildings for awhile.  It opens this fall.

Conclusion.  To be clear, I think programs like the new one by University of Southern California are great, and that cities like DC should be open to them. I'm just turned off by the puffery.

I find DC's planning around higher education to be pretty disappointing.  But that's not a unique failing.  DC's planning function and capacity has diminished with each mayor since Anthony Williams left office in 2006. (Maybe it was in stasis under Mayor Gray.)

Cities like Greensboro or Portland or Spokane have to be more innovative because they have fewer opportunities.  

DC has plenty of assets.  They aren't coordinated or leveraged very well.  And that's where the local government planning functions have opportunities.

Years ago I suggested a multi university building East of the River, and later how graduate health education and  biotechnology research program could be the anchor for revival of the St. Elizabeths East Campus, as part of the building of a new hospital there ("Ordinary versus Extraordinary Planning around the rebuilding of the United Medical Center in Southeast Washington DC | Part Two: Creating a graduate health education and biotechnology research initiative on the St. Elizabeths campus").

DC needs to be more innovative to be able to develop its economy semi-independently of the federal government, which was slow and steady and growing for decades, but now no longer is, especially with the impact of what is now called work from home (formerly called telecommuting) post covid.

Instead, under Mayor Bowser DC's urban and economic planning functions have stagnated.

Another attempt to raise discussion about the DC Height Limit

As it happens, for economic reasons that these days are mostly theoretical, I am not against raising DC's Height Limit. 

Because of the pre-covid demand for office space, the height limit "forced" a constant demolition and reconstruction of the buildings Downtown, to maximize their value and usable square footage.

As a result of this "recycling/upcycling," rents have always been comparatively high.  This forces less high value uses out of the city, counter to the Jane Jacobs point that successful cities need "a large stock of old buildings" -- based on the assumption of lower rents -- to support the development of innovative uses, and lower value uses that add to the diversity of a city (like a sewing machine repair shop).

Because that kind of space doesn't exist in DC anymore (some remnant spaces like that still existed into the 1990s), either innovative uses don't develop -- such as the nonprofit advocacy sector, which as cheap spaces disappeared groups stopped being created counter to the heyday of the 1960s and 1970s -- or they develop in or relocate to the suburbs.

A change to the Height Limit by allowing taller buildings, would reduce the pressure to recycle and reconstruct every building, providing opportunities for lower rents.

But only over multiple decades, which is why the concept from the urban economics standpoint is somewhat moot.

-- "Height Act: It's important to discuss but too late to make any difference on what has already happened," 2010 

Around 2012 under Mayor Gray and Planning Director Harriet Tregoning there was interest in pursuing a change, because the then Republican Congressman Darrell Issa--he chaired the House Committee with oversight over DC--was amenable.  

-- "DC height limit revisited," 2012
-- "More discussion of the height limit #1: Grant height increases conditionally, in return for significant public benefits, not as matter of right," 2012
-- "More discussion of the height limit #2: Without adding high capacity transit service, there should be no increase in allowable heights," 2012

But it didn't go anywhere.

I argue this was because the DC side was full of hubris--we have the city's interests at the foremost they intimated, but they failed to think in the slightest in how to make the argument about how the current residents would benefit.  Residents and legislators like Phil Mendelson weren't convinced.

Today... Earlier in the week there was a not particularly enlightening oped by former DC Planning Director Andrew Trueblood suggesting a reconsideration of the Height Limit ("A monumentally modest change to D.C.’s height limit could reinvigorate downtown").  I guess that was an opening salvo for Mayor Bowser, as the Post ran an article today about her wanting to address this ("As D.C.’s downtown struggles, Bowser looks skyward for answers"), because of the decline of Downtown in the face of Work From Home ("Downtown D.C.’s struggles mount as many workers remain remote"). 

My first response is that it's a great example of the failure to be proactive.  When your commercial real estate market has tanked, it's a bad time to come up with a way to triple the amount of office space, although sure they want housing too, and focusing on adding housing is what Trueblood suggested was the value of pursuing a change.

In other words, do the change because you're desperate. Not because the market is favorable.

Although they ain't talking about anything substantive, an increase of 30 feet, from 130 feet to 160 feet.  This will have very limited impact.  And to make housing conversion of empty office buildings a little easier.  Again, not substantive.

Regardless of what they think, there isn't that much demand for multiunit housing in the central business district.  Sure there is some, but it's not like 150,000 people want to live there, and that's the kind of number that would be substantive.

-- "The unintended consequences of converting office buildings to housing: the need for public safety; schools; amenities," 2022

Real benefits from lifting the Height Limit.  Again, I think that Mayor Bowser is likely to be weak articulating potential benefits to residents.

I'll give two primary and one secondary:

1.  Transit/Transportation.  Use the monies to fund and expand transit, especially Metrorail within the city as discussed above and in various postings such as "More on Redundancy, engineered resilience, and subway systems: Metrorail failures will increase without adding capacity in the core" (2016).   

That called for a Separated Silver Line serving Georgetown, Union Station, H Street NE, and Bladensburg Road, and new routing for the Orange Line within the RFK campus.  And separating the Yellow and Green Lines too.

I'd also include my proposal to add streetcar service to the National Mall between Union Station, Georgetown and South Capitol (Nationals Stadium/Navy Yard/Wharf), "Revisiting: a proposal for heritage streetcar service on the National Mall | adding service to the DC waterfront" (2022) and streetcar service in other parts of the city, double deck buses ("Making bus service sexy and more equitable," 2012) and bus service East of the River ("mproving intra-city bus service in DC: a reaction to the DC Policy Center report on improving transit access East of the Anacostia River," 2018).

And Maglev and the Central Business District, which is another inducement for a Height increase, one completely unseen by DC's planning and economic development officials ("DC, Transformational Projects Action Planning, and the Baltimore-Washington Maglev project," 2021).

And to fully leverage Maglev, expanding Union Station ("DC State Rail Plan," 2015) and both integrating and expanding regional rail passenger service ("A new backbone for the regional transit system: merging the MARC Penn and VRE Fredericksburg Lines," 2017).  And undergrounding New York Avenue's regional transportation element ("Maglev as an opportunity for DC to underground through traffic on New York Avenues," 2020), doing some freeway decking ("Bloomingdale Village Square Initiative will be holding its third Community Forum on the proposed North Capitol Deck-over Park," 2020),, undergrounding the Anacostia Freeway ("DC and "city repair" of the urban grid," 2020).

2.  Social urbanism and equity planning.  Use the monies to fund the implementation of a social urbanism development program in the low income areas of the city ("Social urbanism and equity planning as a way to address crime, violence, and persistent poverty: (not in) DC," 2021 and "A glaring illustration of the need for comprehensive health and wellness planning in DC: Providence Hospital," 2018).

3.  Repositioning and refocusing positive attention on DC in the face of suburban outmigration and repositioning and refocusing attention on the Central Business District in the face of decline.

Funding.  If everything broke right, the first new tall building could maybe come online in 12 years.  So changing the Height Limit today won't impact the city's tax revenue stream * for decades.  

So the only way to fund it is through the creation of a Tax Increment Financing District covering the entire Central Business District.  Selling bonds against future tax revenue increases, and use that money to fund transit expansion and social urbanism projects.

But because it will take so long to come to fruition revenue wise, the District will have to be formed to last for at least 50 years--often with this kinds of initiatives, the expectation is that everything can be wrapped up in 20 years.  By contrast it took about 30 years to see substantive change resulting from the Metrorail subway system.

And the first bonds shouldn't come to term for at least 25 years.  And they'll have to be sold in tranches to get the best value.

* Note wrt commercial property tax values and assessments.  Well, one way increasing the Height Limit (substantively) now is that it would actually help the property tax revenue stream is by stabilizing value. Properties are worth less today because they aren't being used for offices, or at a much lover percentage, given the high number of work from home employees post-covid ("Real Estate Values in the Time of COVID," NBER).

But by adding build out capacity to every property they are worth more assessment value wise, likely making up for the loss of value otherwise, even if the value won't be captured in actual taller building for many years.

=====

DC and economic development.  When I first got involved in revitalization, comparing places like Pittsburgh and Baltimore to DC, I used to say "those cities have a desperate willingness to experiment because they have no other choice."  By contrast, DC wasn't much interested in innovation.

DC's been pretty fortunate that it regained its value as a place to locate businesses and to live.  But the development that occurred was pretty homogeneous.  Office buildings with retail on the ground floor, focused on organizations serving the federal government.  Residential buildings with retail on the ground floor.  They never figured out how to develop sectors other than those federally related.  That's really a problem now.

-- "Could bringing premier regionally headquartered business enterprises to the Pennsylvania Avenue Corridor be key to its renewal and revitalization?," 2014
-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014
-- "Why Mayor Bowser is right to be leery of systematic lowering of taxes," 2015
-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016
-- "The East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the mostThe East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the most," 2021

Before I learned more, I thought DC's economic development officials were pretty good.  But as I continued to learn, they seemed to stay the same.  

My point about DC's arts ecosystem is analogous--it focuses on consumption, not production, taking/using, not making/doing.

And now that the city's facing serious exogeneous shocks to its business model--office workers coming to the city are down by half, diminishing the value of office space, wrecking the ability of ancillary stores and restaurants to make money off office workers, and diminishing the value of the transit network generally, especially rail transit, because the demand for travel to the center city has been reduced significantly--not being able to pivot is a problem, and having been very homogeneously focused on "economic development" in particular ways is far less productive.

Also see:

-- "Portland, ‘repelling its current citizens,’ is Seattle’s cautionary tale ," Seattle Times
-- "Seattle faces a moment of truth to save downtown," Seattle Times

Silicon Valley layoffs as a hiring opportunity for IT developers/city economic development elsewhere

The Philadelphia Inquirer has an article, "Philly employers are desperately seeking tech workers even as Silicon Valley giants are laying off thousands," making the point that despite the massive layoffs at software technology firms in California and Washington, there remains plenty of demand for developers at firms in places like Philly.  From the article:

Locally, “tech jobs” have generally been safe from cuts, he explained, because they tend to be focused on maintenance or development of current products. In that way, Philadelphia is different from Silicon Valley, where many technologists are doing research and development and other speculative work, Wink said, which might get de-emphasized in a recession.

... The Chamber of Commerce for Greater Philadelphia is working on a campaign to attract and retain tech talent in the city. A shortage of tech talent exists in most places, said Sarah Steltz, the chamber’s vice president of economic competitiveness, and Philadelphia wants to welcome displaced tech workers who may have been laid off.

“Philadelphia has not had the same profile of being a tech ecosystem” as some other cities, Steltz said. But local companies now see “a unique opportunity to try to build the concentration of tech talent we have here in our region.” ...

Multiplier effect

A recent report from Technical.ly titled “A Way Forward: What’s really holding back diversity in tech?” explained that while Greater Philadelphia’s tech ecosystem is relatively small, employing just 3.7% of area workers, it is important because each tech job created supports 4.4 other local jobs. That effect is lost, however, if the employees don’t spend any of their time in the region where their employer is based, Wink said.

Sure they won't make quite as much, but the cost of living is likely significantly less and there can be other quality of life improvements as well.

This could have positive impact on local economic development in the same way that Pfizer's dumping of a major research facility in Ann Arbor, Michigan led to the strengthening of the biotechnology business sector there, with almost as many employed as before, but spread across many more companies, and in a manner where more steps of the value chain remain in Ann Arbor.

-- "How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a biotech sector there ," 2021
-- " AI and agglomeration/cluster development ," 2021

Quantum change in technologies can change industrial agglomeration economies, business and sector organization, location etc. | Electric vehicles

One of the things that has struck me about the introduction of the electric car is how it is transforming the automobile manufacturing industry which has been clustered in Michigan and the Midwest after the initial period of experimentation and development in the early 1900s, although some manufacturing was always distributed around the country such as in New Jersey, Maryland, Missouri, New York, California, etc.

But in the 1980s, increasingly companies, especially non-US based manufacturers, began opening plants in the South, because it is more difficult for successful labor organization of the workers at those plants, therefore generating lower labor costs.  In the 1990s, seeking even lower labor costs, firms moved more production to Mexico as well. 

Increasingly, engineering and design functions are developing in Southern locations, especially when the companies are outside of the traditional Big 3 firms ("Driving force: San Antonio picks up speed in auto industry," San Antonio Express-News).  From the article:

The shift to automotive research and development could make San Antonio a hub for high-wage jobs in zero-carbon transportation in the years ahead, city officials say. DeLorean said its San Antonio employees will earn, on average, about $140,000 annually. 

“The long-term play is to get more of the value-added work. So when you see Navistar coming here, they didn’t just bring a truck factory, they brought their engineering plant,” Marquez said. “That’s what our county strategy has been from the beginning.”

The onset of the electric car has created a similar kind of exogenous shock, with Tesla having plants in California and Texas, Rivan opening a plant in Georgia, states like Oklahoma are vying for plants ("What to know about Oklahoma's embrace of the electric vehicle industry," Daily Oklahoman), and distributing development, design, and engineering functions away from the Midwest, etc.

The Detroit News has an interesting article about GM and how its president, Mark Reuss (son of a former GM president also) remains committed to keeping Michigan and the Midwest as central locations for the production of electric vehicles, rather than moving elsewhere.  

-- "Mark Reuss kept GM investing in Michigan, Detroit to build EV future here"

Transportation costs.  An article in the New Yorker about logistics said that with the rise of the container, shipping costs dropped from almost $6 per ton to 16 cents ("When Shipping Containers Sink in the Drink").  That's why firms became free to move manufacturing overseas.

If the rise in the cost of energy and the difficulty of having enough truck drivers persists, along with other supply chain and logistics problems, it could well be that moving automobile manufacturing outside of its traditional areas could be costly in terms of sourcing parts, etc.

Political costs: legacy versus new industries | Fossil fuels versus green energy industries. Another thing is that by moving plants into Republican states, they can be subject to more criticism and opposition, which may be fomented by businesses committed to a fossil fuel based economy ("The pollution paradox," Guardian).   And what I call the intra-national "Petro State" effect, where states like Texas and Oklahoma promote pro-fossil fuel policies.

For example, Governor Kemp of Georgia has been criticized for providing tax incentives to Rivian ("Rivian electric car plant blasted by foes at Georgia meeting," AP).  (The Economist argues that such lobbying helps countries like China, who are more focused on developing new technologies and industries rather than saving old ones. See "China’s plans for the electrified, autonomous and shared future of the car.")

But what will happen to states like Texas and Oklahoma as electric vehicle related firms rise in importance?  Will the states have to be more "fair" about representing multiple sets of interests?  Probably not, fossil fuels in the short run are far more important economically to the economies of those states.

AI and agglomeration/cluster development

This article, "AI’s benefits are clustering in cities like Seattle. It’s tech inequality again," by Seattle Times business columnist Jon Talton reports on the development of clustering and agglomeration and the emerging industrial sector of Artificial Intelligence/AI.  

It's a response to a newly released report from Brookings, The geography of AI: Which Cities Will Drive the Artificial Intelligence Revolution?

It's a nice complement to the recent blog entry on the development of a biotechnology cluster in Ann Arbor, Michigan, and the point that a lot of different elements are necessary to successfully develop a cluster

Brookings states that San Francisco (the Silicon Valley) is the leader so far, and that 8 other cities--Seattle, New York, Boston, Los Angeles, Washington, D.C., San Diego, Austin, Texas, and Raleigh, North Carolina--have the conditions/preconditions to be leading cities in the development of the industry  It lists SF as the leader, and S as other key centers. 

The article mentions 87 other places that have the potential, including Detroit, because of the auto industry, and Charlotte, NC and its place in finance and finance related AI. 

Talton is skeptical of cities like Detroit and Charlotte becoming leaders in AI, even though they are industry leaders in their respective fields, and I guess I am too. He writes:

But few of these have the world-class talent, top universities, tech transfer, entrepreneurship, financing and innovation clusters that would allow them to leap into AI’s headwaters. Expanding federal support for AI research might give some a boost. But it’s a long curve. 

No wonder the report finds AI activity highly concentrated “in a short list of ‘superstar’ metro areas and ‘early adopter’ hubs, often arrayed along the coasts.” Another 261 metro areas aren’t in the game at all.

As Paul Krugman wrote recently ("What Vaccine Supply Tells Us About International Trade," New York Times), referencing a supply chain study of the development of the vaccines, and how even big countries donn't have the scale to do all the pieces, that the supply chain has to be global.   

AI is bigger than cars or finance and likely that AI clusters will go beyond industry-specific sectors.  Even if back in the day, partly because of the auto industry, Detroit had its own big iron computer company, Burroughs (and before that, Parke-Davis, a drug company, and in Kalamazoo a major drug company, Upjohn).  Eventually, those companies were taken over by bigger companies, located in places that were more central to those respective industries.

Over time, the scale in secondary cities isn't big enough for the company to thrive, they need to operate on a national or international scale.  E.g., were I in charge of Barnes & Noble, I would have figured the company was large enough to become the industry leader with an e-reader, because it was a bookstore chain with a national footprint and many hundreds of stores.  

But the reality was that Amazon operated at a much bigger scale, and was better positioned to make their e-reader, the Kindle the dominant industry leader ("Why is Nook faltering and Kindle going gangbusters?" Marketing Dive), even if the Nook is better ("I bought a Barnes & Noble Nook in 2020, and I didn't expect it to be this good," Android Police).

In fact I was thinking about this over the weekend, in response to this article ("GM's new business model turns carmaker into software company: 'A potential game-changer'," Detroit Free Press) about GM repositioning as a software company.   (Also see "Ford Motor Company as a transportation company not a "car" company: bike share and small scale transit," 2016).

That's what Roger Smith said about GM when he bought Electronic Data Systems and Hughes Aircraft in the 1980s.  While they ended up making a lot of money off the acquisitions, at the end, the company wasn't changed.  It remained an automobile company, not a software company ("With Hughes Sale, G.M. Buries a Discarded Strategy," New York Times).

It's unlikely GM will be able to change its DNA from manufacturing to software.  

OTOH, new firms like Tesla started as "digital natives" and are in a much different position as digitally-immersed manufacturing companies ("Tesla Motors: A Silicon Valley Version of the Automotive Business Model," Capgemini Consulting).

Some universities are good at startups.  Talton suggests that San Diego has a shot, because of the success of UCSD at spinning off potentially successful businesses.   This is mentioned in the Pfizer article, that some universities are really good at sparking startups but most aren't, but UCSD is one of the outliers.   

Cities need to focus their economic development strategies.  Talton writes:

Too many cities throw incentives at low-end tech facilities such as data centers, which produce few jobs — and not good ones. They refuse to do the heavy lifting to expand funding for higher education and invest in the quality amenities that draw talent.

I have mentioned this a lot in terms of DC:

-- "The East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the most,," 2021
-- "Aerotropoli and rethinking the scale of mobility networks in the context of a global economy," 2013
-- "DC area airport planning," 2021
-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016
-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014  

Cities need to work to strengthen the sector, especially in information technology, engineering, and biotechnology. 

By contrast, DC is far more comfortable with office buildings, retail, and housing development than it is with substantive economic development, especially stoking higher education as a vehicle for economic development.  This comes out in interviews with DC officials recounted in this Wall Street Journal article, " The Pandemic Hit Cities Hard, but Especially Washington, D.C.."

It's fortunate though that the federal government, especially the military, is such a large customer that it is big enough to have seeded the IT sector, which is why Amazon opened a second HQ in Arlington County, Virginia.

-- "Crystal City Arlington as Amazon one-half of HQ2 | Part 1: General + Housing impact," 2018
-- "Part 2: Leveraging Amazon's entrance for complementary economic development improvements," 2018

How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a more robust and independent biotech sector

Crain's Detroit Business has a very interesting article, "How Pfizer's closure planted a thousand seeds in Ann Arbor," about how the closure of the old "Parke-Davis Research Center" on Plymouth Road north of the University of Michigan's North Campus has seeded a biotech business cluster there.  (The article is locked but you can access it through printfriendly).

Postcard image of the Parke-Davis Research Laboratory in Ann Arbor.

Parke-Davis, a pharmaceutical company started in the 1850s in Detroit, was an example of how companies developed around the country, based on the expertise of the proprietors, before similar types of businesses tended to cluster into particular areas (Upjohn in Kalamazoo is another.  While the firm no longer really exists, Pfizer kept its production facilities there, and it is part of the coronavirus product manufacturing chain.)

Parke-Davis created the first drug-focused medical research laboratory in Detroit in the 1800s, and eventually moved its research to Ann Arbor in the late 1950s, buying land from the University of Michigan, and it became  one of the largest non-university, non-hospital employers in Washtenaw County.  The firm was acquired by Warner Lambert in 1970 and then Pfizer in 2002. 

Pfizer made the decision to shrink its research footprint and close the facility in 2007, and in 2009 it sold the facility "back" to the University of Michigan. 2,100 people were laid off with the closure.

Challenge to naive assumptions about business and technology development.  I have a series of articles about how DC could create a graduate medical education and biotechnology research initiative on the St. Elizabeths west campus, anchored by a new Southeast Hospital replacing the troubled United Medical Center.  

-- "Ordinary versus Extraordinary Planning around the rebuilding of the United Medical Center in Southeast Washington DC | Part One: Rearticulating the system of health and wellness care East of the River
-- "Part Two: Creating a graduate health and biotechnology research initiative on the St. Elizabeths campus"
-- "Part three: the potential for donations around an expanded program"
-- "Update on DC's plans to build a new United Medical Center"
-- "Community Health Improvement Planning"
-- "A glaring illustration of the need for comprehensive health and wellness planning in DC: Providence Hospital"

While the DC area does have a number of biotechnology firms, mostly centered in Montgomery County and anchored by activities of the National Institutes of Health and other federal laboratories and agencies ("University of Maryland could seed a complementary biotechnology and medical education initiative in Prince George's County"), charlie has pointed out that may not be enough, especially compared to Boston, San Diego, and San Francisco (although Greater DC and Baltimore is ranked #6 nationally in "Top Cities for Biotech 2021," Excedr).

Thinking about the implications of the Ann Arbor biotechnology cluster made me think about how creating viable products is not that easy, and while many universities and federal laboratories do have some success in fostering business development, there's a big difference between the creation of a few businesses, versus the creation of many to the point where it merits notice as a nationally significant cluster ("Life sciences is poised to be Boston’s dominant industry. Has the area become the Silicon Valley of biotech?," Boston Globe).

Reading about the successful development of a small biotechnology cluster in Ann Arbor, with seemingly great existing resources already in the University of Michigan generally, its medical and engineering programs, its hospital complex plus the VA and St. Joseph Hospital System, made me realize that not unlike college football, which has about six football programs that are at a quantum level beyond the other "Power 5 programs" ("How to break up Nick Saban's monopoly at Alabama to improve college football," USA Today), the reality is that there are six to seven universities that spin off successful start ups at a scale far beyond the rest:

• MIT and Harvard in Boston
• Stanford University in Palo Alto/Silicon Valley
• University of California San Diego
• University of California San Francisco
• maybe the University of Washington in Seattle (Microsoft located there because that's where its founders lived before leaving for college, Amazon started up in Seattle because of the entrepreneurial culture created by Microsoft, and over time UW has gotten more involved in that ecosystem)
• University of Texas Austin contributed to the development of an IT cluster in Texas, but key events like the creation of Texas Instruments had little to do with Austin ("The launch and evolution of a technology‐based economy: The case of Austin Texas," Growth and Change, 50:2, 2019).

Ann Arbor's development of a post-Pfizer biotechnology cluster.  As mentioned, Ann Arbor does have significant economic development advantages: a large university; with medical and engineering schools; major hospital systems and extensive medical research operations; an existing business development ecosystem; and high quality of life.

One of the problems with the hyper mergers in the pharmaceutical industry is that as the firms become bigger, companies seek to work on only those drug solutions that are likely to make many billions of dollars.  So they have slimmed down, focusing on areas where they believe they have extra-normal expertise, abandoning areas of research that may be successful, but lack the right level of economic impact ("Drug companies keep merging. Why that’s bad for consumers and innovation," Washington Post).

The research laboratory in Ann Arbor developed many successful drugs over the years, and had many potential successful drugs in the pipeline, they just no longer fit the direction at Pfizer.

Viable drug candidates needed new homes.  In closing the laboratory, Pfizer was not vindictive, and they were willing to support the transition of drug solution research programs to new firms. 

Because many of the staff had worked and lived in Ann Arbor for a long time, they had relationships with other actors in the industry, professors and others at the university, and a preference to stay, and they were motivated to create new firms to continue the research that they had been engaged in at Pfizer.

So a big difference between say DC trying to create a biotechnology hub is that the Ann Arbor lab closure wasn't just about space, like Walter Reed was or the St. Elizabeths campus, it also had viable drug products in the development pipeline.

Normally these products would be shifted off to other parts of the company as they became viable, approved, manufactured, marketed, and distributed.  So those parts of the product development chain weren't present in Ann Arbor heretofore.  

Ann Arbor's pre-nascent biotechnology cluster was presented with facilities, a research ecosystem, and potential products.  For example, Richard Florida's Rise of the Creative Class was based on the idea that Pittsburgh, despite the success of Carnegie Mellon University in sparking business development, didn't have a fully developed business ecosystem, and as the firms grew they left the area for cities with more talent and a more developed venture capital system.  Although maybe unexpectedly, at least to Professor Florida, eventually Pittsburgh's business development ecosystem became more developed, and better able to retain start ups as they grew, became larger, and/or moved from concept to production.

Viable, realizable, saleable products already in the pipeline made the difference.  When Pfizer made the decision to slim its research portfolio and research centers, the Ann Arbor facility had as many as 25 drugs beyond the discovery stage, potentially efficacious and therefore viable business candidates,  At the outset, fifteen firms were created immediately as a result of the lab's closure.  Today there are 250 biotechnology firms in the area, and about two-thirds of the lab's 2,100 workers still live in Ann Arbor-Washtenaw County.

The economic development lesson is that Ann Arbor  was "presented" with a more complete and functional biotechnology cluster from the outset, rather than needing to create products and each business subsystem from scratch, which ordinarily requires a long period of time, which sometimes is successful but often isn't, which is why such economic development initiatives often fail or take decades to be realized.

One big firm versus many small firms.  One of the points made in the Crain's article is that the Pfizer lab was a large employer, with 2,100 employees.  But while it was a big employer, it was less resilient as an element of the Ann Arbor economy, if circumstances were to change.  By comparison 70 companies each with 30 employees employs the same number of people, but if a few firms shutter, it has less negative impact than if the large firm shutters.

(By comparison see Rochester, New York, which has been devastated by the diminishment of Kodak and to some extent Xerox, as well as by IBM's closure of facilities etc. "Kodak's long shadow," Rochester Beacon, "Last days of Kodak town: the decline and fall of the city photography built," Guardian).

The other element that the article didn't mention was the entire product design, development, manufacturing, and distribution chain.  With a large company, the bulk of the profit generating activities are performed elsewhere.  With smaller firms, it's possible to capture locally more of the chain of revenue generating activities.

A key element: venture capital.  Unlike MIT, which has a venture capital arm as part of its endowment investment program, the University of Michigan isn't that active in that space of start up development, and unlike the early 1900s (capital surpluses from the Michigan forest and mining industries helped to fund the nascent auto industry), Michigan was a venture capital laggard.

This began changing in the late 1990s.  So when Pfizer made its announcement, and the imprimatur of firms having grown out of Pfizer and the institutional prominence of the University of Michigan, start ups were able to raise capital, including from local firms.  But had the research center closed earlier, capital to support this scale of new business development might not have been available, stunting the creation of a biotechnology cluster in Ann Arbor.

An interesting research question: what makes universities good or not good at spinoff business development?  Not being an economist, I'm not up with all of the research and literature on business development.  Certainly, Saxenian's book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, has influenced me greatly. (She has a newer book, The New Argonauts: Regional Advantage in a Global Economy, which I haven't read.)  

The article on Austin cited above ("The launch and evolution of a technology‐based economy: The case of Austin Texas," Growth and Change, 50:2, 2019) looks at "institutional factors" like presence of other companies, universities, etc., which has always been my focus. 

-- "The East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the most,," 2021
-- "Aerotropoli and rethinking the scale of mobility networks in the context of a global economy," 2013
-- "DC area airport planning," 2021
-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016
-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014   

But can the factors that separate the top seven universities (at least the ones that I think are the top) for business start up development, from the rest, with the aim of helping universities do a better job at this?

(On the other hand, maybe the type of people who work at universities and federal labs are different from the people who work in the private sector? and that's a key factor.)