NYC Tech Industry - How Big Is "It"? Why Is It Important?

Roosevelt Island Campus, NYC, under construction.

A recent study estimates that the New York City workplace includes 291,000 jobs in the city's tech "ecosystem", with 150,000 of the jobs being tech positions in non-tech industries.

Within the tech industries, 58,000 jobs are tech jobs and 83,000 are non-tech jobs, a total of 141,000 jobs.

The study, The NYC Tech Ecosystem by HR&A Advisors, also concludes that 44 percent of the tech jobs do not require a bachelor's degree.

The study takes the correct position that to estimate the number of jobs in the "tech industry", we should include not just companies like Google and Facebook. It also believes that the count should go beyond occupational titles like entrepreneurs, coders, and engineers.

We took an inclusive stance toward the definition of software and IT jobs in the estimates we did for the NYC Comptroller's 1999 report on NYC's Software and IT industry, but it was not as broad as that of the HR&A report. I was the chief economist for the Comptroller at the time of the report, and Henry Etzkowitz was a consultant to the report.

Adding together the NYC and suburban job figures, the Greater NYC total was 47,000 in the software and IT NAICS codes, for the year 1997. This is one-third of the number of payroll jobs in tech firms in the HR&A estimates.

NYC is second only to Silicon Valley in number of
private tech companies acquired in 2012.

As a benchmark for assessing these estimates, Con Edison's 1999 staff for information resources was more than twice the number of software staff (293 vs. 140).

For software firms servicing Con Ed, the ratio of software staff to other information resources was slightly more than five to one (108 vs. 19).

My interview with Etzkowitz a year ago got into the question of technology as an economic development engine. It prompted some private comments to me from David Hochman that I have obtained his permission to share.

He wonders about the use of the term "tech" and "technology" in connection with the driving of economic development. Using the widest possible definition of tech jobs may not necessarily be helpful. See his blog post on this topic. The implications of his line of thinking include the following:

• The broadest definition of technology may be less useful for economic development purposes than a narrower one. Counting too many non-tech jobs in tech industries may make it hard to focus economic-development support. 
• Including too many non-tech jobs doesn't help the NY Tech Council, for example,  define itself as a "technology" council. Lacking a clearer boundary, it is tied down to software, web site and mobile communications functions.
• NYCEDC could fall into a trap of competing with Silicon Valley or Route 128 on the size of the tech work force rather than the quality of its tech initiatives. The challenge should be to get all the wealth creation, job creation and distribution we can out of the assets NYC brings to the global economy.
• NYC's universities could similarly get lost in congratulating themselves on the number of their graduates in tech industries rather than on the extent of their entrepreneurial skills and the next-generation readiness of their graduates. NYC's universities are still not obviously in the front rank in the tech field. The Roosevelt Island experiment is exciting but has as yet borne limited fruit.

The best news is that in Bloomberg's third term the startup innovation providers moved closer to the big, primary driving sectors. Hochman wrote to me:

You are right - this was resisted at first. What changed is that NYCEDC embraced the synergy/symbiosis, whatever you want to call it, and decided to make that the heart of the marketing/promotional campaign. Bloomberg asked NYCEDC to deliver marketing sizzle, and they did so brilliantly, joined by the Partnership for NYC and the NYC Investment Fund. I get at some of this here.

Hochman wasn't aware of the innovation group that met regularly at the NYC Comptroller's Office in the 1990s. However, he did know about the "New York Academic Consortium" of tech transfer officers that Etzkowitz mentioned in my interview with him. It was for many years bogged down in discussions of techniques of deal maximization, rather than on the more basic question of maximizing economic development. As Hochman says:

That's why I separately convened a group with some tech transfer officers but also many other university office directors with different titles and duties such as director of economic development or director of incubation initiatives. For a time we were the only group in the city - that I was aware of - discussing the cultural barriers to success. Only in the last few years have our institutional tech transfer offices become interested in spinoff formation at all, and it's still not the primary driver in offices that bring in so much money from drug royalties.

While I am a fan of the Cornell/Technion initiative on Roosevelt Island, Hochman has a warning about the way in which it was put together:

I am a skeptic... and I certainly disagree with your (tongue-in-cheek) conclusion that you should have tied your policy initiative to a real-estate program. I think that was a very bad outcome. Some of this I hinted at at my initial comments on the applied sciences initiative, but I haven't done the serious commentary I've been planning since Cornell was announced, though I certainly agree with you on the importance of Manhattanville and the role of engineering generally. 

These economic-development issues are not new. Stuart Leslie and Robert Kargon, professors in the History of Science program at Johns Hopkins University, wrote a paper, “Selling Silicon Valley: Frederick Terman’s Model for Regional Advantage”, Business History Review, Volume 70 (Winter 1996), 435-472. Long before Bloomberg launched his program, the paper explores the origins of the Silicon Valley model for regional economic development, and some problems with its replicability. We covered many of these issues  in Chapters IX, X and XI of the 1999 Comptroller's Report.

Leslie and Kargon show how the Silicon Valley model worked. Frederick Terman, Stanford's provost, envisioned a partnership of academia and industry, and trained students to put it into effect. He cultivated an aggressive entrepreneurial culture.

Beginning in the 1960s, business groups set out to move the model to other places, building their own versions of Silicon Valley, in some cases enlisting the help of Terman and his disciples. The authors discuss several examples, including the New Jersey Institute of Science and Technology, led by Bell Labs; the Graduate Research Center of the Southwest and the SMU Foundaton for Science and Engineering in Dallas, Texas; and the Korea Advanced Institute of Science and Technology - of which the Korean example is rated the most successful. The paper shows both the importance of the contributions of local universities and the limits to their ability to generate startups in the absence of a local tech industry that is available to nurture the environment within which startups can thrive.

More recently, in Invented Edens, Robert Kargon has moved on to write, with Arthur Molella, about models of the techno-city, i.e., a planned city developed in conjunction with large industrial or technological enterprises. The authors map the concept as applied in Norris, Tenn., home of the Tennessee Valley Authority and Disney’s Celebration, Fla.

In the early 1990s, the Disney Development Company set out to spend $2.5 billion to develop 4,900 acres in the Reedy Creek Improvement District. The plan -  prepared by Cooper, Robertson & Partners and Robert A. M. Stern - combines advanced energy and communications concepts with extensive parks and trails. Celebration is designed to be the ultimate techno-city and was named the "New Community of the Year" in 2001 by the Urban Land Institute.

The Terman model has served Silicon Valley well. We need to learn all we can from it. But it is not the only path to innovation in technology. New York City and Celebration and other communities need to explore other avenues.

HARVARD | Glomming onto Stanford-MIT Model–Splendor in the Glass

Professor Kit Parker and Dean Youngme Moon
Engage NYC Alumni on Innovation

In New York City last week to celebrate Harvard's 375th year and reconnect with alumni was Drew Gilpin Faust, Harvard’s 28th President and its first woman president.

Alumni came to the Allen Room at Jazz at Lincoln Center, on the 5th and 6th floors of the Time-Warner building at Columbus Circle.

The huge room is surreal, with the backdrop of New York City arrayed through two full floors of walls of glass squares–an exterior flat wall and an interior curved one.  As the evening rolled on like a play in a Greek amphitheater, the lighting darkened and added to the entertainment value of the event.

Walter Isaacson was President Faust’s interviewer. He served up a few appropriate puffball questions and then fielded sharper questions from alumni, who wrote on 4x6 cards at each seat with a little golf pencil. A flock of serious people patrolled the stepped aisles of the room and carried the questions to Mr. Isaacson. The same people later carried radio microphones up and down the steps for the second part of the program, on innovation, which was the meat of the evening.

President Faust announced an "80 percent yield" for the entering freshman class of the fall of 2012, i.e., the number of applicants who accepted a place at Harvard College divided by the number invited to attend. This 80 percent figure is the highest Harvard figure since 1971, and my recollection is that Harvard's yield is the highest of any university. Huzzah!

President Faust explained Harvard's high yield rate by giving examples of the current emphasis on teaching at Harvard. The University is attempting to reward good teachers with the same kinds of recognition that accompany significant research.  Good idea!

Isaacson then read out the first alumni question, asking about the status of the Science Center at Allston, and the cognoscenti leaned forward to hear her response. President Faust answered by referring to the impact of the global financial meltdown on the size of the University's endowment.

My Comment: The scaling back of the Science Center is a reflection of the decline of the Harvard Endowment by 30 percent or $11 billion in fiscal 2009, as predicted earlier in Vanity Fair.  In the prior 18 years, the Endowment grew more than sevenfold. Jack Meyer, former First Deputy Comptroller and investment manager for the New York City Comptroller, quintupled the Endowment during his tenure. Key Harvard officials were apparently unhappy in 2004 that Meyer and key staff earned eight-figure compensation for their good performance. President Larry Summers, with support from Robert Rubin on the Harvard Corporation, argued that Meyer was unnecessarily aggressive. Meyer and some key staff quit in early 2005 and set up a private hedge fund that did extremely well during the next five years, outperforming its benchmarks by 8 percentage points a year. President Summers did less well, resigning in mid-2006 following a well-publicized dispute with women faculty; the next president of Harvard was its first woman. To maintain its budget in light of the Endowment's 30 percent slide in 2009, the University took on $6 billion new debt, with a reported annual service cost of more than $500 million. Some ambitious plans, notably for the Allston Science Center, were shelved.  The endowment recovered 21.2 percent of its value in the last two years, but is still $5 billion below where it was in 2008.

A new plan for the Center is being refined, reports President Faust. It will encourage both a greater concentration of scientific talent in the science center and will establish designated locations for nearby private businesses to create spaces for commercializing new ideas–more like Stanford and MIT.

To underscore the message, the rest of the formal program was devoted to a discussion of innovation. The Dean of the Harvard Business School in charge of the MBA program, Youngme Moon, began the discussion. She is a short and slender (see photo at top) graduate of Yale (a few gasps were heard) and Stanford, and previously taught at MIT. She was counter-balanced physically by a beefy engineering professor with a background in the U.S. Army, Kit Parker. They engaged aggressively with the audience on where good ideas come from and the culture of competition. Having contrasted innovative companies like Apple and Nike with not-very-innovative enterprises like the US Postal Service, the two took pains to establish that Harvard was in the former category.

Their underlying thesis is that a university has the job of being a fountainhead of innovation. Individuals put out ideas and then through debate they see how their ideas compete with others in a marketplace of ideas. The discussion then circled back to what kind of students Harvard wants to admit and develop. Answer: It wants students ready to try new things, and it wants to encourage them to do so, which means making it okay to fail. No more looking the other way as students stay in their comfort zone to be sure of keeping all their grades at the A level. Harvard wants students to graduate having tried new things. Harvard wants to be a place where one can "put out ideas and let them compete and it is okay to have ideas fail and start over, letting the bad ideas go."

My Comment: The idea of a marketplace for ideas is ancient, at least as old as the Socratic Method. It was explicitly promoted by John Milton, John Stuart Mill and Thomas Jefferson, whose writings are resurrected when universities want to defend academic freedom and tenure. But Harvard is saying more than that professors should be  free to speak their minds–it wants students and faculty to develop ideas that will be marketable. The marketplace is not just a testing of ideas for soundness, but for actual dollarization of thinking. So Harvard becomes a kind of factory for new ideas, with venture capitalists lurking nearby to pump money into the best ideas. The venture-capital industry happens to have been pioneered by a government agency, the Small Business Administration, through its Small Business Investment Company program. It also works in the nonprofit field as the heart of social entrepreneurship initiatives. But rewards for risk-taking depend on timing and universities are not always the best place to commercialize ideas. Neither Bill Gates nor Mark Zuckerberg continued to hang around Harvard after they decided they had a good idea they could build into a fortune.

After all that we repaired to a post-discussion cocktail party with a parade of servers with small hors-d'oeuvres artistically arranged on elegant glass plates. The biggest risks seem to have been taken by the servers, who had to walk up and down stairs and then face hungry Harvard alumni competing to nab and wolf down the small delicacies. A good innovation for the Allen Room would be a dumb-waiter.

Postscript: After I wrote this I belatedly picked up my April 30, 2012 issue of The New Yorker and read the story by Ken Auletta on Stanford's close ties to business - "Get Rich U." The subtitle is: "There are no walls between Stanford and Silicon Valley. Should there be?" Auletta looks at the other side of the Stanford coin. Stanford faculty not in engineering or computer science told him they felt the humanities are neglected. They wonder about the harnessing of Stanford to student and faculty greed. What happened to the contemplative tradition? When the proposal to open up a New York City campus of Stanford came along, the dissidents questioned excessive focus on applied science. Auletta's story does not note a key fact in the competition among Stanford, Cornell and NYU. Along the way a Cornell alumnus pledged a $250 million gift to the Roosevelt Island campus if Cornell won the bidding. That must have skewed the decision-making, since the campus will be hugely expensive and New York City's contribution is limited to the land and some infrastructure. One person who has seen all three proposals believes that NYU's was the best of all. Once Stanford had withdrawn, the Mayor provided NYU with a substantial consolation prize in the form of space and resources in Brooklyn to help NYU realize its proposal in conjunction with NYU Poly (formerly known as Brooklyn Poly). Although Auletta criticizes the Mayor for giving Stanford a hard time in the final weeks of the competition, the Cornell gift was a game-changer. The Mayor's support of both the Cornell and NYU proposals may turn out to be brilliant. Business Week just came out with a riposte to Auletta, arguing that in the face of competition from China and India, we need more Stanfords. But what is properly a top economic priority for New York City and a valid focus for Cornell and NYU may not necessarily be totally compelling for Harvard. The trade of birthright for soup was a good deal for Isaac's father Jacob, but a bad one for Esau. It's at least worth a little more discussion, which is what alumni reunions are good for besides increasing alumni giving.

NYC | To Be #1 in Tech? The Cornell-Technion Campus

Model of Planned 2 mil. sf Cornell-Technion Campus

The December 19 announcement of the winning university bid to create a high-tech campus in New York was stunning. It was preceded by mystery and secrecy.

When he was elected, Mayor Bloomberg was expected by many to be a leader in bringing technology to New York City. In 2011, in his third term, he has fulfilled this expectation.

Part of his plan was an RFP for universities to bid on using city land to build a high-tech campus. In May the Mayor also provided a roadmap for NYC to become "the leading digital city".

The Offer, the Sites and the Candidates

The Mayor offered $100 million of NYC money toward university use of underutilized NYC land along with the land itself. The three main candidate sites were Governor's Island, the Brooklyn Navy Yard and Roosevelt Island. The campus was conceived of as the "Stanford of the East", and the smart money was on Stanford winning the RFP. After all, Silicon Valley has long been #1 in venture capital investments in technology, evidence of its long expertise in spinning off high-tech companies from centers of excellence in a university environment.   

MIT was also seen as a possible candidate. The Route 128 area in Boston followed the same track as Stanford and was widely viewed as #2 in tech spinoffs. An MIT professor visiting New York City 15 years ago told me that New York City would never catch up to Boston in the tech VC arena because New York City "doesn't have the entrepreneurial spirit".

Well, guess what. The first surprise of 2011 was that the VC people were reporting that tech investments in NYC were exceeding tech investments in Boston. New York was now #2 only to the Bay Area. For whatever reason, MIT did not submit a bid.

Stanford seemed to be putting a huge amount effort into its proposal, but then it suddenly withdrew. Was this a sign that the project was just too ambitious? Or was too tied to real estate? Was this exciting idea going to be still-born?

Cornell, with its existing nexus to New York City (the Cornell-Weill Medical Center, the Cornell Club, the Cornell Institute for Labor Relations), was expected to join Stanford. But Cornell had its own idea and reached out to The Technion-Israel Institute of Technology in a series of secret meetings. Technion had the experience with spinning off companies that Cornell lacked.

Politicking meanwhile continued over the various sites. Roosevelt Island is in Rep. Carolyn Maloney's district and on October 19 she held a press conference to argue the case for this being the best site. On December 14 she announced that her campaign and petition drive had convinced the US Postal Service to take Roosevelt Island off the list of post offices to be shuttered. So for the time being a post office on Roosevelt Island was guaranteed.

The Announcements

Just as well, since four days later, on December 19, the Mayor revealed ahead of schedule that Cornell and Technion won the competition with a plan for building a facility on Roosevelt Island with 2 million square feet of space, costing $2 billion. The plan was given credibility by the announcement of the $350 million gift on top of the $100 million promised by the City of New York for infrastructure improvements and $300 million worth of land. The $350 million gift is the largest Cornell has ever received. With $750 million in hand, $2 billion doesn't seem so far away. The visionary Cornell donor was later identified as The Atlantic Philanthropies, founded and funded by Charles F. Feeney.

The Mayor must have been impressed not only by the degree of Cornell support but by the Cornell-Technion commitment to green architecture in the zero-pollution buildings themselves and in the planned academic staffing. It will also include major expertise in computer science (a given), energy efficiency and public health.

New Yorkers were ecstatic. BetaBeat ("The Lowdown on High-Tech") produced a slide show of "14 Terrifically Scientific Signs" that 2011 is "the year for New York Tech". One sign was the bypassing of Boston. Another was the materialization of the tech campus.

The Importance of the Campus

BetaBeat was being funny, but New York City may indeed soon be #1 in tech. Density is destiny and the aggregation of tech consumers and producers in NYC is going to be hard to beat when teamed up with a nerve center for high-tech research, education, innovation and financing. I have no inside information about why Stanford pulled out, but word of a $350 million gift by an alumnus to Cornell to support its bid for the tech campus may have prompted some serious questions to and by Stanford about the degree to which it could match this degree of commitment. The gift was a preemptive strike, about which much more will be written by people interested in the history and strategy of the relationship between cities and scientific knowledge and the commercial exploitation of this knowledge.

This is a breakthrough not just for New York City but for the United States. As manufacturing jobs have flowed overseas, the United States must generate new kinds of jobs - well-paid jobs. High-tech startups offer the potential for creating such jobs. University campuses that concentrate technical and business talent and provide incentives for forming startups have been proven job-generators.

I've been following this subject since 1973 when I wrote a report on "The Wealth of Cities" for the Council on Municipal Performance. From 1992 to 2006 I served three New York City Comptrollers as their Chief Economist and I worked on a report called "The NYC Software/IT Industry: How NYC Can Compete More Effectively in Information Technology" (April 1999). It shows how jobs in Information Technology in New York City grew 15 percent a year during the second half of the 1990s. I handed a copy to Deputy Mayor Dan Doctoroff early on in Mayor Bloomberg's first term. Here is a summary with links to the report. CUNY Chancellor Matthew Goldstein said he liked it. I think it still makes good reading in the context of the new Cornell-Technion campus. See if you agree.

Happy New Year!