NYC as a Potential #1 Global Tech Leader

L to R: John Tepper Marlin, Helen Keller, Henry Etzkowitz.

Last month I met with my friend Henry Etzkowitz for breakfast. There he is with the hat in the photo at left. I am taking the picture (a "selfie") with my right hand. Behind us is a portrait of Helen Keller that reminds me of the thought, “None so blind as cannot see,” an idea dating back before Oedipus to Jeremiah 5:21.

On the appropriate policies for encouraging technology, Etzkowitz is my guru. He travels around the country and the world picking up honors for his documentation of policy successes, and I update him on recent developments in NY State and NY City, the most interesting of which is the Cornell-Technion Center on Roosevelt Island.

Over the last two decades we have often shaken our heads together at the failures of NYC policy-making to encourage technology as an engine of local economic development.

Tech Policy, NYC, 1995-1999 

Our shared interest in tech policy goes back to the 1990s when I was serving as chief economist for the second of the three NY City Comptrollers, between 1992 and 2006. The chief economist function was created by new responsibilities conferred by the 1990 NYC Charter Revision on the Office of the NY City Comptroller.

(The Comptroller, an elected official, is currently John Liu. Eliot Spitzer has just thrown his hat in the ring to succeed Liu. Outgoing Borough President Scott Stringer has for months been considered the most likely to be elected.)

The City Comptroller's office has been included in economic-development planning - for example, in a 1995 conference organized by the President of the Federal Reserve Bank of New York, Bill McDonough. The NY Fed called together leading institutions in the region to explore New York’s potential for transition to a knowledge economy, imitating the initiative taken before and after World War II by the Federal Reserve Bank of Boston, and leading to the expansion of tech startups along Route 128. The Lower Manhattan Association provided administrative support for the NY Fed’s conference, and a young science-policy graduate, Michael Salvato, worked on the program. Etzkowitz was a key participant, as the then-director of SUNY’s Science Policy Institute.

Magnificent it was, but not sustained. Few participating institutions signed up for the follow-up phase. Contrast this with the New England Council, a decades-long effort from the 1920s that sought to follow the model that led to Silicon Valley, by systematizing the high-tech spinning-off fostered at Harvard and MIT.

The New England Council sustained its effort first in scientific instruments at the turn of the 20th century, then in radio in the 1920s. Their work helped create Small Business Investment Companies and the entire venture capital industry after World War II. When I was at the Small Business Administration in the 1960s, I was able to study at close quarters the successes of the SBIC program. The American Research and Development Corporation was founded in 1946 as a pro bono regional development effort. A decade later it founded the Digital Equipment Projects, which was intended to create better aircraft training simulators but engineered the mini-computer along the way.

Why Did the NYC Regional Effort Fail? 

So why was the effort not sustained in New York City, in contrast to the Bay Area and Route 128?

Maybe

• Silicon Alley was considered to be doing okay by itself and the involvement of government and universities wasn't seen as necessary. 
• NYC software firms that were competing with the Bay Area and Route 128 by supporting Wall Street's highly proprietary electronification projects did not see any value in regional cooperation. 
• Their growth was resisted by traditional parts of the advertising industry, which felt that it was being cannibalized. (The AOL merger with Time Warner did not seem to be good for the traditional information and communication businesses.)
• Some knowledgable tech people felt that NYC was too far behind Stanford and MIT both on the entrepreneurial front and in the sophistication of its programming to begin to compete. 
• Others decided that nothing more was needed than a professional association - first the NY New Media Association, then the NY Software Industry Association (which evolved into an incubator that depended too much on its real estate viability) and the putatively broader-based Tech Council.)

The NYC Software/IT Industry Report, 1999 

In this environment, the NYC Comptroller’s Office published a report, under my direction, on the “NYC Software/IT Industry” in April 1999 (summary and links to pdf files here). The NY Times covered it well, including with its summary of the report a photo of the Comptroller. The Chancellor of CUNY, Professor Harry Markowitz, told the Comptroller he loved the report. The Comptroller was pleased and generously said so. Etzkowitz played a key role in helping us define the history of tech policy and an appropriate path forward for NYC, as reflected in the last few chapters of the report.

The Report showed that New York had most of the elements required for a world-class technology center:

• A public-school system that provides a steady supply of well-trained high school graduates who are ready to grapple with technology issues at the university level.
• Close cooperation among regional universities, private and state-run (and definitely including community colleges), to ensure strong support for entrepreneurs seeking high-quality technical staff.
• Centers of technology excellence among the universities, especially schools of engineering, and supportive faculty at business and law schools.
• Training for technology experts in tech transfer and entrepreneurship.
• University-based incubator labs and university support for policies that reward labs and centers and individuals within them for innovation. 
• Business interest in, and support for, bringing university-based ideas to market in a collaborative environment.
• Government support for technology to encourage university-business cooperation.

The big missing tooth in this dazzling smile was the entrepreneurial skills created by the open communication between universities and business in Silicon Valley and Cambridge, Mass.  NYU and Columbia around that time announced they were going to work more closely together on research and technology initiatives.

The Dot-Com Bust and Mayor Bloomberg’s First Two Terms 

However, in fact technology took a back seat after the sharp drop in dot-com share values in spring and fall 2000. The NY Academy of Sciences won a million-dollar grant from the STARR foundation, but the large universities were not impressed and most of the funds went to support publications drawing attention to the tech assets of the region. A seminar series drew second-tier administrators and junior faculty, with the notable exception of the President of New York Poly in Brooklyn.

One practical result was the creation of a network of area university technology officers who spun off their own support network. After 9/11, and the election of a mayor who had made his fortune by selling technology services in the form of Bloomberg machines, Etzkowitz and I expected the new mayor to lead a major tech initiative that would make the City of New York into a tech center that might eclipse both Silicon Valley and Route 128.

We were disappointed. The new mayor made clear he was a businessman first and techie second, and he did not undertake any major tech initiatives in his first two terms. He made up for that in his third term with the competition that led to the Cornell-Technion project, but if he had stuck to the term limits in City Charter he would not have left much of a tech legacy.

For the ten years after the Comptroller's Software Report, Etzkowitz and did what we could to keep the recommendations of the software report in front of people who might implement them. Etzkowitz organized the NY Inter-University Seminar on Innovation, bringing researchers and practitioners together from across the region. We had monthly meetings with guest speakers who discussed the recommendations for inter-university cooperation for technology development. We deliberately did not meet at universities, but mostly in the Comptroller’s Office and sometimes the conference rooms of law and business offices.

In 2001 I wrote to the Mayor about creating a technology-transfer office comparable to the Mayor’s film and broadcasting office. In 2002 I met with Deputy Mayor Dan Doctoroff on the subject.  Etzkowitz also tried to get some interest from the new Mayor.

While the NYC Economic Development Corporation did some good things to assist firms involved in the knowledge economy, their focus was largely on matching up available real estate with business needs. They took action when real estate opportunities meshed with tech promotion.

The Cornell-Technion Initiative and NYC’s Potential 

In 2012, as the Cornell-Technion Roosevelt Island initiative took shape, Etzkowitz and I felt that our thesis of the missing link in NYC’s innovation ecosystem — a Stanford-MIT-like institution focusing on commercializing knowledge, tech transfer and incubation, as well as basic research and education - had found a place on NYC’s policy agenda.

In retrospect, it looks as though to get the interest of Deputy Mayor Dan Doctoroff we should have translated the Software Report recommendations into a real estate-driven project. When I met with Doctoroff I should have come in with a plan not just for policy but for leveraging $100 million in vacant city land and municipal bonding to attract 20 times that in university and business investment.

A lot of cities are trying to emulate the success of the Bay Area and Route 128. The typical competitors are state capitals with a local university like Albany, N.Y. or Austin, Tex. or Raleigh, N.C. On the Cornell-Technion plan, Etzkowitz comments:

Mayor Bloomberg’s Roosevelt Island project is now focusing on master’s-level students. But research groups require a variety of skills and levels of involvement, including Ph.D. students, post-doctoral fellows, teaching faculty, research associates and undergraduates, supported by large-scale research funding, typically from the federal government, with state government and industry support at the margin.

I remember attending a meeting of MIT alumni in NYC, when Mayor Bloomberg had just published his book and was contemplating a run for Mayor to succeed Giuliani. He emphasized how competition keeps everyone on their toes. Afterwards I spoke with an MIT professor who said that NYC would never catch up to Route 128 because it didn't have the entrepreneurial spirit. Etzkowitz thinks this is still a problem: "NYC still needs an MIT-type institution, along with a system of mentoring research groups to generate spinoffs. Entrepreneurship is a group activity."

One of the hopes of Mayor Bloomberg's economic development team is that Technion - which has a strong record of generating spinoffs - will stimulate Cornell and together they will light a fire under NYU, Columbia, CUNY and SUNY. Etzkowitz sees some potential in some "home team" NYC projects:

NYU has a big data analysis center focused on urban issues, building upon its mathematical strengths and industry links. Columbia is breaking its geographical boundaries, expanding its technology projects above 120th street and linking with City College, in a joint biomedical/engineering research center, building on the strengths of these two schools. NYC also has special assets. The SUNY Fashion Institute of Technology spins out boutique fashion firms, continuing the Institute’s role of bringing together industry and labor to helped the garment industry grow into the fashion industry. Similarly, the SUNY at Purchase theater and dance schools operate on an implicit incubator model, graduating theater and dance troupes into NYC’s thriving cultural economy.

A key to the future is how state governments are responding to their revenue challenges. Etzkowitz  thinks that underfunding of schools in California since Proposition 13 and cutbacks in support of the University of California may damage the Bay Area franchise. Massachusetts, meanwhile, is going in the other direction, funding its public schools and universities.

Henry, thank you for our conversations. And for you, the reader who has read this far - there is more to this story, so stay tuned! (Follow tweets on Twitter - @cityeconomist.) (August 14, 2014: See followup post here.)

BLOOMBERG | Cloning Himself

Nearly 30 years ago, Mayor Michael Bloomberg left Salomon Brothers (it was the recession of 1981-82), and he transformed his $10 million severance check and his Salomon shares into a giant company with more than 9,000 employees concentrated in the New York City area.

He had a hunch he could compete with the Reuters terminals and he was right.

Now he wants to clone himself so that in 30 years other people can look back and say: "My giant company got started in New York during the Decession (Repression?) of 2008-2010."

His new idea is one I hoped the Mayor would come round to. I said so last October in an Op Ed in City Hall News:

Today, the city has a once-in-a-generation opportunity to harness the energy of Wall Street entrepreneurs bursting with ideas as grand as Bloomberg's was in 1981, but who need partners to make their ideas a reality. Layoffs from the downsizing of Wall Street create a unique opportunity for talented displaced workers to start or partner in new businesses or social ventures. The displacement could help advance the Mayor's PlaNYC 2030 agenda by encouraging green entrepreneurs--profit-oriented or nonprofit, like Solar One and GreenEdge NYC--to make the Big Apple into the Green Apple.

When I wrote this less than five months ago, the latest estimate from Albany of the likely loss of New York's financial services jobs was 40,000. The estimate now is 65,000.

Mayor Bloomberg doesn’t pretend his plan will restore all 65,000 jobs. But his “guess” is that the small businesses could create 25,000 jobs. Last week a NY Times story by Patrick McGeehan describes the Mayor’s new plan, which is to

invest $45 million in government money to retrain investment bankers, traders and others who have lost jobs on Wall Street, as well as provide seed capital and office space for new businesses those laid-off bankers might create. The plan is intended to stem a potential exodus of banking professionals from the city during the restructuring of the financial services industry, which has been the city’s economic engine for decades, and to speed the industry’s recovery, which will take at least several years, officials said. Mr. Bloomberg recounted how he created his company in a rented 10-foot-by-10-foot room. He received no help from the city, but he said that was no reason not to help other entrepreneurs now.

The most tangible aspect of the plan is the creation of new incubators, one of them at 160 Varick Street, where he announced his new plan. The Varick Street building

will house an incubator for start-up companies that might employ laid-off professionals. Trinity Real Estate donated the space for three years and the Polytechnic Institute of New York University will select the entrepreneurs who will occupy the space, beginning in April. A second business incubator is scheduled to open in Lower Manhattan later in the year, said Seth W. Pinsky, the president of the city’s Economic Development Corporation. The agency plans to put $3 million into funds to make small investments in start-up companies, Mr. Pinsky said. He said that he hoped to attract twice as much money from private investors and that $9 million would be enough to help start hundreds of new businesses.

I spent the first half year after retiring from the Comptroller's Office in a business incubator in Manhattan and I have recently written about another one, Green Spaces in Brooklyn, as “Green Edge 14”. A report I worked on for the NYC Comptroller on the software industry in 1999 concluded that NYC needed more well-conceived incubators.

Successful incubators such as those that spawned the successes of Route 128 and Silicon Valley require energy from several sources. The MIT-Stanford model is based on a three-way fusion of energy from business entrepreneurs, government money and leadership, and university knowledge. Incubators in New York City that have petered out have usually lacked strong enough government support or university involvement.

My friend Professor Henry Etzkowitz calls the fusion of energy from the three sources in a well-functioning incubator the "Triple Helix" of innovation. If we are looking to clone financial entrepreneurs, it’s hard to think of a better DNA to work with than the Mayor’s.

TECH | NYS Underperforms

How should one monitor the progress of a state's competitiveness in the stakes for future tech jobs?

One way is to look at the data for federal grants for Small Business Innovation Research (SBIR), which is a way to bring research dollars to a state at the same time as one is building a stable of ponies for future venture-capital bets.

New York City’s Silicon Alley (in conjunction with its more hardware-oriented cousin techspots up the Hudson Valley from Poughkeepsie to Albany and elsewhere in the state) likes to think of itself as #3 after Silicon Valley and Route 128, and a recent ITAC report seeks to make something out of the fact that in the total number of tech jobs, the NYC metro area ranks ahead even of Silicon Valley and Greater Boston. The sheer size of the NYC metro area is what seems to put NYC ahead on the ITAC count. It is certainly true that having a lot of tech jobs in the NYC area is important in creating critical mass for future innovation. But density of tech jobs is surely more important for creating an environment conducive to serendipity, and the other important ingredient is effective leadership from the governor's office.

These factors go a long way to explain why NY State performs so poorly on the number of SBIR awards in FY 2006. New York was in eighth place in FY 2005 as well, so the rank is not an accident of the year 2006. As expected by the conventional wisdom, California ranks #1 with 725 grants and Massachusetts is #2 with 466 grants. But between these two front-runners and NY State (with only 163 grants) are five interlopers: Virginia (221), Texas (176), Colorado (173), Maryland (169) and Ohio (167). The strength of Virginia and Maryland on this list could reflect the proximity of their Beltway components both to agency grant-makers and to the Army and Navy research labs. Texas may also have benefited from its having a former governor in the White House for nearly six years.

But Colorado and Ohio ranking higher than the Empire State? I was mystified and am grateful to my friend David Hochman for helping me understand why they are doing better than NY State. Colorado doesn't have aggressive tech programs at the state level but it has several large Commerce Department (NIST and NOAA) and DOE labs, and in addition, for a range of historic reasons a really vibrant (high-density) tech community around Boulder and Longmont. Ohio has not only the Air Force labs and a significant NASA Center but also an unusual state program called the "Third Frontier" Project, a.k.a. the Ohio Research Commercialization Grant Program (felicitously acronymed ORCGP). This program, which has no direct parallel in NY State, provides aggressive support for institutions attempting to obtain federal grants.

Between 2005 and 2006, Michigan (with Detroit in a near-depression status because of the decline of the U.S. auto industry) dropped off the top ten list and was replaced by Washington (home of Microsoft, 91 grants). In ninth place is Pennsylvania with 133 grants.

Since Governor Eliot Spitzer was not in charge in FY2006, these numbers do not reflect on his current administration. We can hope that New York moves up in the rankings in future.