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The Town-Gown Connection

September 7, 2012 7 minute Read by Carl J. Schramm

What makes cities grow? This question is the subject of countless magazine articles peddling lists of “best cities” and is fodder for consulting firms looking to sell advice. But in reality, the most reliable measure of a city’s future health is whether employment is expanding or contracting. Declining cities are not home to growing businesses that need people. Only true believers in the come-back story would move to Detroit, Cleveland, or Buffalo right now — the three big cities with the highest unemployment rates in the nation. So what features of a city correlate with expanding employment? The index-making experts offer all kinds of explanations. Some say it’s smart people, as measured by the percentage of persons holding various university degrees. But using degrees as a proxy for the quality of a city’s human capital can be very misleading, as anyone who has hired real people will attest. Richard Florida advances the “smart people expand employment” theme through a surrogate measure — the housing and entertainment infrastructure and culture (of tolerance) that attract creative people. My observations suggest that these ideas are headed in the right direction, but it is doubtful they are insights that suggest actions able to improve a city’s growth path. Sometimes such expert advice proves ruinous. Kansas City provides an example. About eight years ago the city bought into the notion that a downtown entertainment district that included open-container laws would bring needed life to the inner core. So called “creatives” would flock to the Emerald City from all over the Midwest to start businesses and give needed vibrancy to America’s least dynamic town — it won’t grow and it won’t shrink. After operating for several years this multi-block restaurant, bar, and night-club zone is underperforming — it is producing only about a third of projected revenue to service its city-issued debt. The real winner is the Baltimore-based developer who sold the city on the idea in the first place. Since the days of Jim Rouse, developers from Charm City — one of the nation’s lowest growth cities — have been selling the future to others. What municipality doesn’t think their future would be improved by having a downtown mall, an aquarium, or new sports stadiums? But in the case of Kansas City, it looks like the “creatives” took the wrong turn — moving instead to Omaha, Nebraska, where the population is growing by about 1% a year. Private initiative is reforming downtown Omaha just as it is in Austin, Texas. Omaha and Austin both enjoy AAA/Aa1 bond ratings, while Kansas City pays through the nose to service its AA/Aa3 debt. The flaw with the Kansas City strategy is common to many municipal growth strategies. They are founded on the implicit belief that outsiders are smarter than native people and the city must attract talent. This is similar to the even greater development fallacy of “smokestack chasing” — recruiting existing businesses to relocate to a city in response to tax relief and public subsidies for new plant and equipment spending. History tells us that the essence of growth in any place is the exertions of people who already live there. Any city’s history of economic success is a story of its resident entrepreneurs (even if they were born someplace else) who decided to take the risk of starting a business. A look at the fastest growing cities in terms of labor demand hints at the surrogate we should be focused on. Every city enjoying notable increases in jobs and declining unemployment has a university. Urbanists have casually made this observation for years. But, in truth, having a university, even a great research institution, doesn’t guarantee economic success for a city. The counter narrative needs only to include Rochester, Baltimore, New Haven, and Cleveland to make the case. What’s important isn’t so much the university itself, but rather the entrepreneurial culture that accompanies many of them. Indeed, the cities with faster growing work forces are home to universities with particularly entrepreneurial cultures. The cultures in Seattle, San Diego, Columbus, Raleigh, and San Jose (proximate as it is to Palo Alto) reflect the particularly entrepreneurial capacities of their universities. One might even offer that, in the future, the universities that will be regarded as the best will be the ones with an explicit focus on inventing and innovating in their research and teaching such that they become schools for creative entrepreneurs. For 18 years I taught at Johns Hopkins. Hopkins is the home to more funded research than any other university in the nation. Yet it has a lamentable record in terms of birthing new businesses based on the breakthroughs happening in its laboratories. Baltimore is seldom among the cities that entrepreneurs chose to start businesses in. Contrast this to MIT, which has generated so many companies that together they have revenues exceeding those of some entire nations. MIT, where I am a visiting scientist, has perhaps the most entrepreneurial environment of any university in the world. It is no stretch to say that more than any other factor, Boston’s economic vitality is connected to the new firms spawned by MIT. Mayors, local elites, business leaders, and citizens interested in improving the future of their local economies should encourage their universities to strengthen their faculty and research to produce more ideas that can be commercialized. Recently, universities that care about the economic future of their communities have begun to develop programs that encourage new firm formation using the discoveries coming from their laboratories. Syracuse, Ohio State, Arizona State, Wisconsin, Illinois, and North Carolina have each established policies specifically designed to assist the development of their home cities. The University of Miami’s Launch Pad is a program that helps new graduates create firms as a means of making their own jobs. It has been enthusiastically embraced by local businesses, in part, because it has created 65 new firms in the last four years. Students who went to Miami to study are staying to become local businesspersons. These programs represent a new and important innovation in town/gown relations. The result should be a culture that is mutually supportive of the university and the local business community. Its success should be measured by one factor — are there new jobs in town?


Author

Carl J. Schramm
Carl J. Schramm

2012 Economic Growth Fellow

Carl J. Schramm is recognized internationally as a leading authority on entrepreneurship, innovation, and economic growth. Currently he is university professor at Syracuse University. For 10 years he served as president of the Kauffman Foundation, making it into the world’s premier organization dedicated to the development of high-growth firms and understanding the role they play in economic growth. He serves as a visiting scientist at MIT and as a fellow of the Bush Institute. He is a Batten Fellow at the University of Virginia’s Darden School of Business and is a member of the Council on Foreign Relations. Schramm's most recent book, "Better Capitalism" (co-authored with Robert Litan) was published by the Yale University Press in September 2012. He has written several other books, including “Good Capitalism, Bad Capitalism” and “The Entrepreneurial Imperative.”

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