“the reality of regionalism is that we should everyone a break.”
At the core of our national consciousness is a shared belief that we achieve economic growth by meeting consumer demands in a market economy. What isn’t shared is a common frame of reference of whether external consequences must be included in this analysis. This is particularly true for technology.
Consider some current conversations about the application of technology and their related broader consequences. Does the broader impact of planted stories lessen Facebook’s utility to consumers? Should we be concerned with the environmental impact of consumers purchasing SUVs? Is the displacement of human labor for robotics justifiable if goods are provided at lower prices? In each case, the market provides commodities that consumers value. But in each instance, there are effects on society that go beyond the user’s own satisfaction.
Recently, I’ve been struck how politicized the discussion of whether we should even consider these effects has become. The mere willingness to ask questions that go beyond consumer satisfaction is now seen as a partisan act. How did we get to the point where an honest discussion of social considerations is seen as anti-capitalist or partisan?
I think that this split stems from how we talk about market efficiency. There are two prevailing views, both shaped by a few hundred years of economic and political thought.
The first view – admittedly somewhat oversimplified – is that simply should not consider social costs and benefits (what economists call externalities) when evaluating market efficiency. What matters for market efficiency in this view is consumer prices – the cheaper the product and service, the better. Because social consequences have traditionally been difficult or impossible to value in dollars and cents, they are not considered; they are irrelevant to this view of market efficiency. To the extent that social consequences are addressed at all, they are assumed to be the maximum social benefits possible in an unregulated free market. The reasoning is that if the social consequences of buying and using a commodity are high, consumers will stop by buying it.
The second view – also oversimplified – is that no discussion of market efficiency is complete without discussing and evaluating broader social consequences. In this view, the market and social consequences are intertwined, even if some of these consequences are not reflected in market prices or financial results. It is not the lowest consumer prices that is most important – it is the broader social benefit from economic activity.
The challenge we face is that these two contrary views of market efficiency leave us with no agreed framework to talk about consequences, and no consensus even on whether we should. One view thinks they are essential, and the other believes them irrelevant.
Unfortunately, neither viewpoint provides an ideological framework to continue to grow our economy. An honest look at many emerging technologies raise legitimate concerns that externalities may overwhelm their overall utility to our society. If people are unhealthy, unemployed or disengaged, they will not be able to spend money on products no matter how low the price. How do we balance this challenge?
I am an unabashed believer in free enterprise and capitalism. My concern, however, is that a blindered view of how the economy works will ultimately undermine our political system or inhibit our ability to use new technologies effectively. Being unwilling to address the consequences of how we apply technology and do businesses won’t make these consequences go away. Failing to acknowledge that consumers care about lower prices more than social consequences will not make them willing to pay more for products that might have more social utility. For example, studies have shown that consumers don’t “buy American” when cheaper alternatives are available.
Our continued failure to share a common view about market efficiency often leaves our international competitors in a better position. Our unwillingness to address consequences also creates resentment in the nation. This is true whether the person is a displaced worker or a motivated environmentalist.
We must understand that talking about whether we should talk about consequences, instead of actually talking about them, doesn’t just marginalize discussion and action. It also allows those who know that their business interests create social consequences to avoid difficult discussions.
Bringing consequences into any economic decision isn’t partisan. It’s sensible and necessary for a democracy.
Our region has a vibrant innovation ecosystem that is one of the most important in the United States. Advanced technologies that drive the country’s economy are nurtured here and further developed and deployed by our highly talented workforce and entrepreneurs. People often don’t see the scale and depth of our innovation and entrepreneurship activity because they focus on the wrong metric.
Many people use a region’s level of venture capital funding as a proxy for the level of innovation. This is a good criterion for evaluating a community centered on the venture-backed start-up business model: businesses are started by angel investors who work with founders to advance a technology to the point of commercial application; venture capital is used to fill out the team and provide multiple rounds of growth capital.
When people apply this criterion to our region, they see a comparatively low level of venture capital activity and conclude that our region must not be a driver for innovation. They couldn’t be more wrong.
What powers our region is its proximity to Washington, D.C. As the seat of government and an international city, it draws peoples’ attention and dollars. People come here to change the world or serve the public interest. That positive reality has become obscured by the cynicism that many feel about government. But that doesn’t change the many positive aspects that this proximity creates.
The first such positive feature is the access to federal research and development money and output. Our region gets a very large share of federal R&D funding – tens of billions of dollars each year. In addition to paying for many highly skilled technologists, this funding often creates market-leading businesses. This happens because substantially all that funding is for applied, not basic, research, meaning that our technologists build things that have utility. There are many examples of this, including Medimmune, which commercialized biotechnology technology developed at the National Institutes of Health, AOL which effectively commercialized the world wide web started by the Department of Defense, and Invincea, a venture-backed start-up that commercialized cybersecurity technology funded by Defense Advanced Research Projects Agency.
Tens of billions of dollars in additional funding is spent in our region on technology services, solutions and products. People outside the region look at these purchases as largely being consultants cobbling together technologies and not innovating. First of all, that is not true. Many of the technologies that we now take for granted – GPS and video conferencing as two examples – were developed by local companies under government contract. Yet even when they are applying or supplying more established technologies, these countless companies, large and small, build significant businesses and train talented technologists. And as an ancillary benefit, government purchasing practices have also created a nation-leading community of successful women and minority technology business owners.
Even when the government is not directly involved as a funder or a customer, entrepreneurs often use proximity to it to grow their businesses. Some gain key insights into market regulation and coming regulatory changes to build businesses. For example, Capital One, which revolutionized the credit card industry, MCI, which challenged the status quo on long-distance phone calls and disrupted the telecom industry, AmeriChoice, which brought managed care to Medicaid recipients and the Inova Schar Cancer Institute that is seeking to treat cancer on a genomic level are all companies that apply in concert technology and regulatory insight. Others create businesses that explain or communicate the goings on of a national and international capital, such as emerging media businesses like Vox and Axios, or veteran companies like the Washington Post.
Because our innovation businesses can often grow with government funding or by being proximate to power, they tend to be more mature and established before they need or want venture capital. They also have tangible, usable technology to utilize. This means that when our local businesses do turn to venture funding for growth, they are much better investments. The data shows that our region’s venture capital funding generates better returns for investors than do those of other U.S. regions.
In sum, our region’s model of developing innovation-based businesses is broader and more durable than a system solely centered on venture capital. Moreover, it has created an ecosystem that applies technology and takes a practical approach to technology creation. This process is funded at a level that exceeds the amount of venture capital that is deployed in any region of the United States.
Application of technology supports a broad diversity of industrial clusters in our region — media, energy, advertising/PR, advocacy, cybersecurity, precision medicine and more. Our technologists are driving advances in genomics, machine learning, robotics, virtual reality and advanced software. Viewing our region in its totality, the conclusion is clear: the greater Washington region has an innovation community that is unique and exciting. We have a workforce that knows how to create advanced technologies and apply them, and start-ups that build compelling businesses.
For any business that is looking for technology talent or for new technologies to acquire, this region is incomparable. Once you see its merits, how you could you not want to be part of it?
Our region rarely speaks with one voice when it comes to economic development. Its many political jurisdictions more often compete with each other than cooperate in their common interest. A current effort to address Metro’s funding challenges — the MetroNow Coalition — shows how our region can unify to solve big economic challenges. If it is successful, it may also eliminate the excuse that our region’s complex jurisdictional environment makes coordination impossible
Locations such as Denver, New York, the Raleigh-Durham area and Nashville all have added jobs and entered new industries through coordinated economic development policies and investments. They have grown faster than our region has. Why isn’t our region pursuing large coordinated economic development efforts like our competitors?
The answer most often given is that these regions do not have to deal with the jurisdictional complexities we face here; it’s easier to work within a single state than to coordinate across state lines.
I don’t agree with this argument. Political boundaries are not what stand in our way; it is the unwillingness of business leaders to stop playing jurisdictions against one another. If you look closely at each successful regional economy around the nation, growth is usually fostered by the business community deciding to work together to improve the local economy and to make investments in the locations with the highest potential for success. Politicians don’t lead these efforts, because they are elected to represent voters who live in a single district. Business people look across geographic and political boundaries without having to worry about satisfying constituents. They are not looking to get elected. They are looking to grow their businesses.
MetroNow, as a collective activity led by business groups to support permanent funding for Metro, could be a model for successful business-led efforts for regional economic development. But will this opportunity be realized? Beth Johnson, founder of RP3 Agency and an expert in branding and public relations, looks at MetroNow and wonders whether business and community leaders will indeed take the time to lead. She is optimistic that they will. But they’ll really need to want to convert words into action, as it will take significant time away from their “day jobs” to drive economic change.
Yolanda Cole, owner of Hickok Cole Architects and chair of the Washington chapter of the Urban Land Institute, believes that the threat to our region from a failing Metro is so profound that addressing the problem will overcome local inertia. Business and community leaders will invest the time and energy, “because our long term economic well-being depends upon world-class transit.”
Clare Flannery, campaign director of MetroNow, says the direct advocacy that many MetroNow coalition members are undertaking in Richmond, Annapolis and D.C. shows a high level of personal commitment by business leaders. Coalition members are talking directly to the region’s elected officials and giving them specific legislative proposals and funding targets. Most importantly, they are speaking with a single voice.
If these efforts are successful, the potential benefits go beyond saving Metro. Bob Buchanan, chair of the 2030 Group, another group leading the coalition, believes that successfully addressing Metro’s funding in this way creates trust, understanding and success that will “lay the groundwork for action in the future.”
Will MetroNow be a template for further success? Or does the fact that Metro is a single, indivisible transportation network that can’t be broken up into jurisdictional parts and continue to operate — make it a unique situation?
I am not sure that we know the answer to that question today. However, one thing is abundantly clear. Whether we chose to act collectively in the future or not, if MetroNow succeeds, our community will no longer be able to point to our unique jurisdictional geography as an excuse for inaction. For that reason alone, MetroNow’s success would be a really big deal.
Millennials – people born between 1980 and the late 1990s – are now the largest segment of our national workforce. Within a few short years, they will be more than three quarters of all workers. This makes it essential that our region be attractive to them.
Last week, American University’s Kogod School of Business released its newest Millennial Index. The index helps us move our discussion of millennials away from clichés to a conversation based upon objective data. Far from being a generation that is motivated by trendy restaurants and bike trails, the index gives us a picture of millennials as an age group looking for jobs that offer high salaries and career progression while living in communities that provide affordable housing and to some lesser extent other lifestyle amenities.
This picture of millennial aspirations should get our attention, particularly as our region competes to attract Amazon HQ2 and other technology employers. When asked to rank the most important factors they use to evaluate where to live, millennials rank jobs as most important (40 percent), affordability as next important (24 percent), followed by career and education options (18 percent), amenities (10 percent) and people (8 percent). This ranking shows clearly that millennials will be less likely to stay here because of people or amenities, if there are better economic opportunities or cheaper living elsewhere. This is a group that will vote with its feet and move away or never come at all.
Indeed, we are seeing some voting against our region right now. In the aftermath of the Great Recession, our region benefited as its economic stability attracted millennials. But in 2017, our region saw a 0.2 percent drop in millennial residents, despite a 1.5 percent increase nationwide.
What will attach millennials to our region for the long term? The Millennial Index suggests that financial security is a large driver. For millennials who are high earners, this region has become their permanent home. They own homes, have children, and are satisfied with their lives and with life in our region. Simply put, their career ambitions are satisfied, and they can benefit from the positive amenities of our region because they can afford them.
However, many millennials don’t have high paying jobs. For them, this region is becoming less and less desirable. The high expenses of life in our region cause many of them to live paycheck to paycheck. And for a good portion of them, getting a better education to find a better job may not solve the problem. Or, indeed, getting that education might be the problem.
This is because millennials as a group face a challenge that prior generations have not: the prohibitive cost of obtaining higher education. Gabrielle Bosché, a national expert on millennial behavior, points to student debt as the major challenge for her generation, describing it as creating financial instability that “cripples my generation’s investing power.”
Jennifer Ives, a seasoned executive and workforce development expert, echoes this view. She notes that particularly for millennials who haven’t gotten high-paying jobs, our region is “too expensive (with their loans) so they prefer second and third tier cities with interesting jobs.”
Stephen S. Fuller, founder of research institute at George Mason University’s Schar School of Policy and Government, has for years been urging us to recognize that our region’s job growth lags that of competing regions. Moreover, the jobs we are creating are not high-paying jobs. Combining his insights with the Millennial Index yields a disturbing picture: our largest workforce demographic is motivated more by financial security than by attachment to people and surroundings, at a time when other regions may have cheaper living costs and offer comparable (or better) economic opportunities.
We pride ourselves as a place that has many world-class universities and community colleges and point to our highly educated workforce as a distinguishing reason why employers should locate here, and new businesses will grow. But, if we don’t work to lower the costs of education, or otherwise help students with crushing debt burdens resulting from developing the skills our economy needs, I fear that our region will lose out to places where millennials can better manage their debt burdens as they pursue their careers.
As we talk in our region about offering economic incentives to attract new employers, shouldn’t we also be looking to apply some of those incentives to solve the problem of student debt