TECH INNOVATION | Three Rays of Hope

June 1, 2020—The Business Incubator Association of New York State (BIANYS), a nonprofit trade association, was established in late 2005 and serves both as a meeting place for incubator professionals, including operators of accelerators and co-working spaces. It started with a biotech focus and now covers a broader spectrum of 100 tech-innovating incubators in all parts of the State. The 2020 Annual Meeting earlier today focused on adapting to the coronavirus. John Tepper Marlin, chief economist for three New York City Comptrollers and former senior economist in two sessions of the Joint Economic Committee of the Congress, was invited to talk about the economic impact of past disasters and paths back to normalcy. Here are his remarks earlier today:

9/11

Disasters take a huge toll on the national and state economies. But there are paths to recovery and these paths are evident now.

Terrorists struck New York City’s World Trade Center twice, in 1993 and 2001. The New York City Comptroller’s office prepared both estimates of the economic impact and I was the chief economist on duty in both cases. In 2001 the office's estimate, prepared within two weeks of the event, was close to $100 billion. This estimate was the basis for a $20 billion package of aid from the Federal Government.

A Kansas twister.

If our future looked bleak after the 9/11 attacks, the outlook is in many ways bleaker now. The Covid-19 pandemic affects the entire country, with 105,000 deaths so far. President Trump’s having shut down the Bush-Obama pandemic preparedness program contributed to this country’s having suffered more than one-fourth of world-wide deaths. The national May unemployment rate to be announced Friday morning is likely to approach or exceed 20 percent, nearing the highest rate of  the Great Depression. 

The high rate is likely to persist, because two months after our economic shutdown, more than one-fourth of the U.S. workforce has applied for unemployment insurance. By late June the eight-week PPP limit for forgiveness of an SBA loan will expire for first borrowers. No one should be surprised that some people in a country on edge have been all too ready to give the President what he seems to have been looking for, deadly confrontation on urban streets. 

High hopes, on the way to the City.

Ray of Hope 1. Washington will have to help with money and, eventually, leadership. Only the national government can afford to pay for major disasters. Even if a twister is only in a single state like Kansas, Washington helps out, because the national government effectively reinsures the states. During a pandemic, when human lives are at stake everywhere, the cost of the response must be put to one side. When the reckoning comes, Washington must play a big role. Why should Kansas “bail out” New York? Because: 

• If New York City fails, the United States loses its biggest economic engine. 
• As Governor Cuomo often observes, New York State sends many billions of dollars more to Washington every year than it gets back. New York “bails out” the rest of the country annually. 
• New York State was the hardest hit because we are the gateway from the rest of the world. 
• Only the Federal Government can print money and issue virtually costless debt, especially since the imposition of the cap on the SALT deduction in 2017.

"If I only had a brain."

The country desperately needs a better disaster preparedness brain in Washington. Governor Cuomo’s regional coalition of states is a brilliant temporary substitute. Disaster preparedness must not depend on which party or which official is in charge. It could be headed by a board nominated by the White House, Congress, National Governors Association and nonprofits dedicated to disaster relief.  My first hope is that analytical tools are being generated now by today’s startups that will allow us to respond faster and better in future. 

The cowardly lion.

Ray of Hope 2. Disasters cause lasting trauma. But the causes and becoming better understood.  Most vulnerable are young people, front-line workers and those who suffer from business interruption. Trauma in a disaster affects workers, their families and even onlookers. State and local front-line staff such as police, fire fighters, teachers and health care workers are under high stress in a   disaster. In financial disasters, the victims may be owners of declining financial assets. Shock suffered by survivors and even remote observers is serious and can be long-lasting. Recent estimates of the impact of the coronavirus suggest that the impact extends to one-fourth to one-third of the population with measurably serious increases in levels of anxiety and depression. Young people whose career paths are interrupted are at risk. So are  business managers faced with closure of their stores or hospitality centers. Huge office buildings in Westchester and Northern New Jersey testify to fears among businesses headquartered in Manhattan that they would have to leave after 9/11. Mayor Michael Bloomberg’s great contribution to New York City was to restore faith among business leaders in New York City's future. In the 2020 pandemic, the dominant uncertainties include the future of bars, restaurants and retail stores; the shift in consumption from physical stores to online purchases; and fear of acquiring illness on public transportation. For problem-solving startups, the ray of hope is in developing new design approaches to spaces so that the public has confidence in returning, or new software apps that allow transactions to be conducted entirely in advance. This will hasten safe reopening. 

"If I only had a heart."

Ray of Hope 3. Tech systems have become the heart of American commerce and industry. Disasters pose special tech ricks for businesses. They are being tackled one by one. Risk managers know that tech assets are increasingly where values are concentrated. Large businesses have  multibillion-dollar IT investments, which have become more valuable than the buildings in which they reside. Businesses are properly concerned to back up their data and avoid getting hacked. Back-up systems in the World Trade Center were sometimes in the same building, so the backups were lost in the attack. Putting the NYC emergency command center in one of the WTC buildings was a concentration of risks that many spotted. Broad-based “cloud” storage promises more security, but we don’t know how well it will survive a cyberattack on our electrical grid or a bomb planted by a terrorist. Making our web storage vandal-resistant is a key opportunity for startups. While startups are fragile and at special risk when financing dries up in a disaster, those that survive will find many opportunities awaiting them. Competitors seek to merge and buyers will find fewer vendors in the same space.

To sum up:

• The country needs tech startups that address our lack of preparedness for  disasters. Opportunities abound for innovation in meeting the specific disasters before the country now, and others that are predictably in our future.
• Incubators and accelerators make a great contribution by helping to form teams, to advise on project planning, to connect with expertise, and to enable startups to bridge the gap between ideas and financing.
• Because incubators process many startups, they increase the probability in a risky environment that at least some of the investment in new ideas will come to fruition. They are therefore a good bet for foundation grants, angel investors and government loans and grants.