How do we measure the promises made by economic development plans?

Governor Andrew Cuomo has invited a raft of advisors to help him decide where the next billion-dollar package of subsidies, incentives, and investments should get sent in order to change the trajectory of Buffalo. He’ll have UB President Satish Tripathi, Taurus Capital Partners principal Howard Zemsky, and the regional economic development council they chair. He’ll have Bruce Katz of the Brookings Institution, whom Cuomo has known since their days in President Clinton’s Department of Housing and Urban Development. He’ll have the mayor, the county executive, the legislative delegation, and all the economic development agencies that will actually manage the tax breaks, grants, and other handouts. And he’ll have plenty of folks alternatively yelling at and beseeching him from Rochester, Syracuse, Binghamton, and the other communities in Upstate New York that didn’t get a billion-dollar promise in his State of the State address. Withal, there are so many capable, smart and forward-looking people tasked to work on Buffalo’s economic challenge that it seems almost unfair to enumerate the obstacles to their success.

How sweet it would be if all these advisors together agreed that they shared a goal of transforming Buffalo into America’s clean, green new hotbed of innovation, entrepreneurship, and creativity, rather than looking for a one-shot, magical mega-factory to come in and at one stroke change the world. The evidence is fresh in from Penn State economist Stephan Goetz that small, locally owned businesses and startups generate higher incomes than branch offices of big firms, which actually tend to depress local economies.

“Many communities try to bring in outside firms and large factories, but the lesson is that while there may be short-term employment gains with recruiting larger businesses, they don’t trigger long-term economic growth like start-ups do,” Goetz said.

Goetz is only the latest of a series of researchers, includes former UB Planning Professor David Perry who note that local ownership of enterprises is a key issue. Perry wrote in 1987 about how the downward economic transformation in Buffalo began when locally owned firms became branch offices of national and international firms, leaving an old ownership class that owned only the proceeds of what they’d sold rather than ongoing enterprises.

Pittsburgh is another Rust Belt “second city” where much work has been done to bring new economic life to a place the financial class long ago wrote off as having labor costs that are too high and environmental regulations that are too tough. For two decades, even as Pittsburgh and its surrounding region have mirrored Buffalo’s population decline, the foundations and universities in Pittsburgh, and a state-funded program called the Ben Franklin Technology Partners, have made extraordinary efforts to nurture startups even as Carnegie Mellon University has become known as the international leader in computer engineering.

Buffalo and Pittsburgh are similar, in that fiscal distress and challenged schools have led to inconclusive talk of a city-county merger. There has been a control board imposed on the city there, as here. There has been talk here, and actual implementation there, about creating a regional funding mechanism for the arts and community assets.

But the two great differences between Buffalo and Pittsburgh are these: First, there is a serious, multi-entity commitment in Pittsburgh to stimulating, mentoring, and promoting new enterprises, and it has been going on for more than a dozen years. Second, there is total focus of new public inputs into the historic crossroads of the region, i.e., into downtown Pittsburgh. The universities are downtown. The big medical center is downtown. The new professional sports arenas are downtown. The new waterfront park is downtown. The entrepreneurship incubators are downtown.

If Buffalo were to do what Pittsburgh has done with its public funds, then Erie Community College would be consolidated downtown, the football stadium would be downtown, and the entire SUNY at Buffalo campus would be moved from Amherst to downtown, and not just its medical school shifted from the 3400 block of Main Street to the 900 block of Main Street. And the Oishei Foundation, the Community Foundation, the Wendt Foundation, and the Baird Foundation would all be sponsoring entrepreneurship and enterprise-mentoring programs, with a well-established state fund working through multiple entities here to get dozens and dozens of technology-based startups going. The CEOs of Buffalo firms would be supervising annual, well-publicized competitions for business plans, and the winners of those competitions would be granted office and/or lab space in a waterfront building, plus capital grants, plus access to angel investors and to ongoing technical support. Our university would also work, as Carnegie Mellon has done for 20 years, to become the acknowledged world leader in a discipline that is so basic that every single technical field, from chemistry to mathematics to physics to downstream applications like healthcare and computer-game design, would seek out its graduates.

And if we were smart enough and lucky enough to get all that done, what would we see by way of results?

The population numbers send a chilling reply to that question. With all the good works, the focused investment, the smart new startups, and the successful preservation of historic structures, instead of Erie County’s loss of 3.3 percent of its population between 2000 and 2010, we would have seen Allegheny County’s population loss of 4.6 percent.

Patience, patience

In the 1990s, the declining port of Seattle, in the state owned by Boeing and the timber companies, became the caffeine-driven capital of global software innovation because of a great big startup called Microsoft. In the first decade of the new century, the joke was that Portland, the home of Nike sports shoes, a huge Pacific port, and an urban growth boundary, had become the place where 20-somethings went to pierce, to tattoo, and to retire, but the truth is that in-migration of educated young people happened and continues to happen there. The magical expansion of Washington, DC, southern Maryland, and northern Virginia happened after Ronald Reagan’s anti-government rhetoric was trounced by his pro-government policies, which dumped hundreds of billions of borrowed federal dollars into companies that hired mathematicians, linguists, engineers, and designers to build and run the largest espionage, communications, and military-technology establishment in planetary history. Entrepreneurship, technology, smart regional planning, and public money all helped make enduring transformations in these places, and in Austin, Texas, and in Denver and Boulder, and even in lesser-known burgs like Chattanooga and Indianapolis, while nothing—not taxes, not crowding, not insane real estate prices—has stopped New York and LA from growing.

But some places have been much harder to help. The great Great Lakes cities have received many billions of dollars of inputs, but deep and unaddressed structural problems have thwarted their transformation. The commonalities are many: municipal fracturing into the “little box” governance that David Rusk and many others have long decried, plus concentrated poverty in inner cities, plus localized school districts that keep poor kids from ever mixing with the middle class, and perhaps worst of all, the Bethlehem Steel mentality—the faulty expectation of both the large low-skill workforce and the tiny local elite that one or two big, vertically integrated companies will come to town to save us.

And then there are the successes that should be a warning of what won’t transform regions. The massive and expanding Cleveland Clinic in Cleveland hasn’t changed the economic or demographic dynamic in that city, any more than has the Rock and Roll Hall of Fame, the Jake, or LeBron James. Cleveland, which lost 17.1 percent of its population between 2000 and 2010, is in a county that lost 8.2 percent of its people. So even where the public and private investment in an internationally recognized healthcare center have created great results, the well-established trends don’t change.

One of them, bigger than even the Rust Belt’s governance and legacy issues, is the structural change in how many jobs our economy can actually produce. Michael Greenstone and Adam Looney of the Brookings Institution just published “Shrinking Job Opportunities: The Challenge of Putting Americans Back to Work,” a study of how even with renewed economic growth underway, there are 12.1 million fewer jobs available than we need to get back to pre-recession employment levels. The study also finds no evidence that Congress’s decision to extend unemployment benefits has made the unemployed more selective about what work they’ll take, as a renowned Harvard economist named James Barro recently alleged. While this may have been true in good economic times like the post-recession 1980s, “it hardly rings true in tough economic times when employers are not hiring and there is no opportunity for unemployed workers to be selective.”

The Buffalo-Niagara Falls metro area has lost 3.3 percent of its population since 2000, and 3.9 percent of its workforce. The population will shrink even more over the next 10 years, and will probably keep shrinking until 2030. So even if the Cleveland Clinic were to arrive in Buffalo (which obviously will not happen), the great success of a thriving international medical center can’t be expected to reverse the region’s fortunes.

Many small successes

What’s instructive about Pittsburgh’s entrepreneurship-fostering approach, however, is that a directed change of culture is underway that could shape the future there. Old firms like Westinghouse are still in existence there, as are huge legacy entities like the Carnegie, Mellon, Heinz, and Buhl foundations, as well as other stashes of industrial-era cash. People in Pittsburgh talk about “boomerang migration,” which is the phenomenon of locals, or locally educated people, returning to their hometown, even if they’re not coming back in numbers sufficient to outpace population decline. Bruce Katz of Brookings, who will be advising Cuomo on what to try in Buffalo, has a long paper trail of advising Pittsburgh to address the problem created by what he called in 2007 “too many local governments” in the Pittsburgh region. But in 2009, when Pittsburgh hosted the G-20 summit meeting of the world’s largest industrial economies, Katz pointed out that the Pittsburgh area had become an exporter, with more than 300 international firms employing tens of thousands of people. “It is time for US metropolitan regions to become more globally fluent,” he wrote.

But it’s the long, labor-intensive process of changing the culture there that seems to be paying off. Since 1999, a Pittsburgh shop called Innovation Works has invested Pennsylvania taxpayer funds as seed capital, funds that have helped more than 150 Pittsburgh-area startup companies raise over $1 billion in follow-on private capital. There are well-publicized entrepreneurship programs at the universities, but there’s more, including business-plan competitions with tangible rewards. One “accelerator” program called Alphalabs offers $25,000 cash in seed funds, plus office space and ongoing mentoring by retired CEOs, Silicon Valley veterans, and academics. A quick survey of the portfolios of these programs indicates that most of them are IT-centered, but some are healthcare-related, some manufacturing-related. The existence of multiple entities that are engaged in the same enterprise—namely, helping new enterprises—has helped create a new business ecology. Venture capital funding, government grants, initial public stock offerings, and publicity in national business media are all growing.

The overall population dynamics of Rust Belt regions won’t change anytime soon. If the measure of success for an economic development program in Buffalo, Pittsburgh, or Cleveland were the addition of net new jobs in places that have seen steep drops in overall population and employment levels, then there would be no chance of success. That doesn’t mean, however, that longer-term growth is out of the question. And there are two countervailing trends underway: a tiny trickle of international immigration, and some post-recession retention of young people that can be attributed to the radical sorting underway in the overall economy. The decades-old Rust Belt phenomenon of losing young college graduates may be ending, or at least slowing, according to several studies of 2010 Census data, because there are simply not the employment opportunities in the Sun Belt that there used to be.

The small successes in Pittsburgh indicate a part of the path forward. Home-grown businesses do indeed change the landscape. Export-oriented firms create jobs, if only a few. Public funds carefully invested in startups help. Focusing on one sector—like healthcare—is not exactly a losing proposition, but multiple inputs that help a wide array of technology-related startups is a much better idea with much better results. It takes mentoring, networking, feedback from multiple universities, and active engagement of both foundations and government, as well as some wise and patient capital. And it takes years and years and years.

Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.